Loan Options for Small Businesses in India — Best Suited for Startups & MSMEs

India’s MSME and startup ecosystem is booming, but access to affordable funding remains a major challenge. Whether you’re launching a new business or expanding an existing small enterprise, choosing the right loan option can significantly impact your growth.

This guide covers all loan options available to startups and MSMEs in India, including government schemes, bank loans, NBFC loans, fintech options, interest rates, documents required, eligibility, comparison tables, and FAQs.

Table of Contents

What Are MSME & Startup Loans?

Small Business Loan

MSME/startup loans are business financing solutions offered by banks, NBFCs, fintech companies, and government-backed schemes to help small businesses with:

Working capital
Machinery purchase
Inventory
Expansion
Infrastructure setup
Technology upgrades

These loans can be secured or unsecured, depending on the lender and scheme.

Government Loan Schemes for Small Businesses & Startups (2025)

Government-backed schemes offer lower interest rates, minimal collateral, and fast disbursal.

(A) Mudra Loan (PMMY) — Ideal for Small Enterprises

Target: Micro & small businesses, shopkeepers, traders, small manufacturers.

Loan Types

Shishu – up to ₹50,000
Kishore – ₹50,000 to ₹5 lakh
Tarun – ₹5 lakh to ₹10 lakh

Interest Rate: 8% – 12%

Collateral: Not required

Best For:

New small businesses
Kirana shops
Home businesses
Local service providers

(B) CGTMSE Loan — Collateral-Free MSME Loans

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) encourages banks/NBFCs to offer loans up to ₹2 crore without collateral.

Interest Rate: 9% – 14%

Tenure: Up to 5 years

Best For:

Startups with limited assets
Small manufacturers
Service providers

(C) Stand-Up India Scheme — For SC/ST & Women Entrepreneurs

Loan Amount: ₹10 lakh – ₹1 crore

Purpose: Greenfield enterprise (manufacturing/service/trading)

Interest Rate: 8% – 10%

Collateral: May not be required (covered by CGTMSE)

(D) PMEGP (Prime Minister’s Employment Generation Programme)

A subsidy-based loan for micro-enterprises.

Loan Amount: Up to ₹25 lakh

Subsidy: 15% – 35% depending on region

Best For:

Manufacturing & service sector
Rural & semi-urban businesses

(E) SIDBI Loans (2025) — Best for Growth-Oriented MSMEs

SIDBI offers various schemes:

SMILE: Soft loans for MSME expansion
SIDBI Term Loan Assistance
Working Capital Solutions

Interest Rate: 8% – 10.5%

Special Feature: Up to 50% of loan without collateral (scheme-specific)

Bank Business Loans for Small Businesses (2025)

Traditional banks offer MSME loans with structured repayment and competitive interest rates.

Top Banks Providing MSME Loans

SBI SME Loan

Loan: Up to ₹50 crore
Interest: 8.40% – 13%
Best For: Medium-sized enterprises

HDFC Bank SME Loan

Unsecured loans up to ₹50 lakh
Interest: 10% – 18%

ICICI Bank Business Loan

Up to ₹2 crore
Interest: 10% – 16%

Bank of Baroda MSME Loan

Up to ₹5 crore
Interest: 8.75% – 14%

Punjab National Bank MSME Loan

Up to ₹2 crore
Interest: 9% – 13.5%

NBFC Business Loans (Fast & Minimal Documentation)

NBFCs are ideal for small businesses needing quick approval

Top NBFC Loan Providers (2025)

NBFC	Loan Amount	Interest Rate	Tenure	Highlights
Bajaj Finserv	₹1 lakh – ₹50 lakh	12% – 28%	Up to 5 yrs	Super fast processing
Tata Capital	₹50,000 – ₹75 lakh	14% – 24%	Up to 6 yrs	Flexible eligibility
LendingKart	₹50,000 – ₹2 crore	12% – 24%	Up to 3 yrs	Online applications
Fullerton India	₹1 lakh – ₹50 lakh	16% – 30%	Up to 5 yrs	Digital onboarding
IIFL Finance	₹1 lakh – ₹30 lakh	14% – 28%	Up to 5 yrs	Ideal for traders

Best For:

Traders
Retailers
Service providers
Small manufacturers needing urgent capital

Startup Funding Options (2025)

Some lenders and schemes specifically support new or early-stage startups.

(A) Startup India Seed Fund Scheme

Funding: ₹10 lakh – ₹50 lakh
Supports: Prototype development, MVP creation, early product launch

(B) SIDBI Fund of Funds

For tech startups
Provides funding via registered AIFs (VC funds)

(C) PSB59 Minutes Loan

Approvals in 59 minutes
Loan: ₹1 lakh – ₹5 crore
Interest: 8% – 12%
Best For: MSMEs with strong financial history

Interest Rate Comparison (2025)

Loan Type	Interest Rate
Mudra Loan	8% – 12%
CGTMSE Loans	9% – 14%
PMEGP	11% – 13% (subsidy reduces effective rate)
SIDBI Loans	8% – 10.5%
Bank MSME Loans	8.40% – 16%
NBFC Loans	12% – 30%

Documents Required for MSME/Startup Loans

Most lenders require:

✔ Identity Proof

Aadhar card, PAN card

✔ Business Documents

GST registration
Udyam Registration (formerly MSME certificate)
Shop Establishment Certificate
Partnership deed (if applicable)

✔ Financial Documents

ITR (1–2 years)
Bank statements (6–12 months)
Balance sheet, P&L (for existing businesses)

✔ Business Plan (Startups)

Clear plan with:

Market analysis
Revenue model
Cash flow projections

✔ Address Proof

Electricity bill/rent agreement

Eligibility Criteria (General)

✔ Age

Minimum 21 years → Maximum 65 years

✔ Business Type

Manufacturing, trading, services, startups

✔ CIBIL Score

650+ (NBFCs accept lower scores but charge higher interest)

✔ Turnover Requirements

Banks: ₹10 lakh to ₹2 crore minimum
NBFCs: No strict minimum

✔ Business Vintage

Banks: 1–3 years
NBFCs: 6–12 months

✔ For Startups

A strong business plan + projected cash flow

Comparison: Best Loan Options for MSMEs (2025)

Which Loan Should You Choose?

Business Stage	Best Loan Option	Why
New Startup	Mudra Shishu, PMEGP, Startup India Seed Fund	Easy eligibility, low documentation
1–2 Year Small Business	CGTMSE, PSB59, NBFC loans	Fast approval, collateral-free
Growth/Expansion Stage	SIDBI, Bank MSME loans	Low interest, higher loan amounts
Emergency Working Capital	NBFCs, fintech loans	Super-fast disbursal

Best Practices to Get Fast Loan Approval

✔ Maintain a good CIBIL score

✔ File regular ITRs

✔ Keep business invoices & bank statements clean

✔ Register your business under Udyam

✔ Prepare a simple business plan

✔ Avoid bounced EMI/cheques

FAQs — MSME & Startup Loans in India (2025)

Q1. Which loan is best for new small businesses?

Mudra Loan (Shishu/Kishore) and PMEGP are ideal for new entrepreneurs.

Q2. Can I get a business loan without ITR?

Yes, some NBFCs offer loans without ITR, but at higher interest.

Q3. Which loan offers the lowest interest rate?

SIDBI and government-backed schemes usually offer the lowest rates.

Q4. Are collateral-free loans available?

Yes — Mudra, CGTMSE, NBFC business loans, and many bank SME loans.

Q5. How fast can a business loan be approved?

Fintech/NBFC: 24–72 hours
Banks: 5–15 days
Government schemes: 10–30 days

Q6. What is the maximum loan amount for small businesses?

Up to ₹5 crore (PSB59 minutes loan).

Conclusion

In 2025, small businesses and startups in India have more loan options than ever before. The right financing choice depends on your business stage, credit score, urgency, and growth requirements.