Types of Business Loans in India 2026

Business budgets often need a boost. It can be for day-to-day operations, expansion, buying machinery and so on. Now, with evolving banking norms and rising digital lending options, getting quick business loans in India has become simpler and more flexible. So knowing the types of business loans in India is important now.

Let's explore the different types of business loans and understand which option fits your needs.

Major Business Loan Types You Should Know

These are the business loan options that you can use:

1. Working Capital Loan

A Working Capital Loan is a short-term loan that helps you handle daily business expenses. Banks and NBFCs usually offer it as CC/OD at interest rates of about 14% to 20% per year. This type of loan is most useful for retail shops, trading firms, manufacturers and businesses that deal with seasonal demand.

Pros: 

• Flexible drawdowns
• Repay only what you use
• Manage working capital needs without blocking capital in fixed assets

Cons: 

• Interest cost tends to be higher than long-term loans
• Must monitor usage and repayment discipline

An example can be: If you run a textile store and need extra money before the festive season to purchase stock, you can take funds through a cash credit limit and repay it easily once your sales increase.

2. Term Loan

A term loan offers a lump sum for a fixed or variable tenure. They are ideal for medium or long-term needs. Interest rates usually range from about 10.75% to 22.5% per year, depending on your credit profile and whether you provide collateral. These loans are generally given to established businesses with proper financial statements, ITRs, GST or audit records, a good credit history and sometimes collateral. This is one of the commercial loan types.

Pros:

• Predictable repayments
• Lower interest vs short-term loans if secured
• Easy planning

Cons:

• Less flexibility
• Longer processing time
• Collateral may be needed

For example, a medium-sized manufacturing company may take a term loan to set up a new production line and repay it over five years through fixed EMIs.

3. Machinery Loan

A machinery loan helps you buy or upgrade equipment without using your working capital. The interest rate is usually around 11% to 18% p.a., depending on the lender, business history and collateral. This loan works best for manufacturers, construction companies, medical practices and logistics businesses that need vehicles or heavy equipment.

Pros: 

• Asset-backed, so the interest rate is lower
• Helps upgrade or modernise the business
• No need for a big upfront investment

Cons: 

• Collateral risk if the loan is not repaid
• Loan is tied to a specific asset
• Limited flexibility

For example, a logistics firm may take a machinery loan to buy a delivery van and repay it over five years while earning through deliveries.

4. Invoice Financing

Invoice financing is one of the types of financing for business that wait 30 to 90 days for payments by turning pending invoices into quick cash. The interest rate depends on the credit period, the buyer’s strength and the lender. It is usually higher than secured loans, around 16% to 24% per year. It works best for businesses with long payment cycles.

Pros: 

• Improves cash flow
• Gives working capital while you wait for payments
• Does not increase long-term debt

Cons:

• Costlier than regular loans
• Buyer’s credit risk may affect financing
• Often short-term only

For example, a furniture supplier that sells goods worth ₹10 lakh on 60-day credit takes invoice financing to get money now and repays it when the retailer pays.

5. Under Government Schemes/MSME Government Schemes

For new or small businesses, the government offers special loan schemes to make borrowing easier. Many lenders provide MSME or small business loans at around 10% to 15% interest, with relaxed collateral rules or government support to reduce risk. These loans work best for first-time entrepreneurs, micro units, small shops, service providers and home-based businesses.

Pros: 

• Easier access
• Flexible repayment

Cons: 

• Loan amounts may be modest
• Documentation and eligibility conditions apply
• Interest slightly higher than long-term loans

For example, a new bakery shop applies under the MSME scheme for ₹5 lakh to buy ovens and fixtures, gets approval with minimal collateral and starts operations smoothly.

6. Cash Credit (CC) / Overdraft (OD)

CC and OD give businesses a flexible borrowing limit for daily needs. You can take money whenever required and pay interest only on the amount used. Interest rates usually range from 10.5% to 25%. These facilities are best for daily working capital, buying stock, managing delayed payments and covering seasonal cash gaps.

Pros:

• Interest only on what you use
• Withdraw and repay anytime
• Helps maintain smooth cash flow
• Higher limits available with good turnover

Cons:

• Costly if used constantly
• The limit is reviewed every year
• Banks may reduce the limit if business slows down

For example, a shop owner gets a ₹10 lakh limit and uses ₹2 lakh to buy stock, so he pays interest only on ₹2 lakh until he returns the money.

7. Startup Loan

A Startup Loan is a funding option for new businesses that have little or no track record, offered through banks, NBFCs and government-backed schemes. The interest rates for startup loans generally vary widely, usually starting from mid-range rates depending on the lender and your business profile. These loans work best for first-time founders, small tech or service startups and micro-enterprises that need seed money or early working capital.

Pros:

• Easier to get through special schemes
• Some options don’t require a long credit history
• Mentorship and other non-financial support may be available

Cons:

• Loan amounts are often smaller
• Lenders check the business plan and cash flow projections very closely

For example, a tech startup secures a seed-term loan backed by a government referral scheme to build its prototype and hire core staff.

These are all the types of corporate loans.

Types of Business Loans in India

Here you can see the secured and unsecured business loans:

From these types of business loans, you can choose the best option.

How to Choose The Right Types of Corporate Loans

Check these to find the right types of business loans in India:

• Define your need: You should know for what purpose you need a loan. It can be for daily expenses, growth etc.
• Check your business size and history: For newer ventures, look at MSME/startup or unsecured options. For established firms, secured loans or equipment loans may suit best.
• Compare interest rates vs cost of funds: Lower interest is good, but check if there are extra charges.
• Flexibility needs: If cash flow is uncertain, choose working capital, overdraft or line of credit. For big expansions, a term loan/equipment loan is better.
• Evaluate collateral availability and risk: If you do not want to risk assets, use unsecured or invoice financing. If you have assets, secured loans give better rates.
• Check loan processing speed: If you need funds quickly, options like invoice financing, overdraft, MSME digital loans or unsecured loans may disburse faster.

Conclusion

Understanding the types of business loans in India is important for you. Today, businesses have more financing choices than ever. By understanding the types of business loans, their costs and which option suits your specific needs, you can make a confident and informed decision.

If you want to explore the types of business loans in India from banks and NBFCs, you can use platforms like My Mudra. We help you find suitable business loan options quickly and easily. You can also check our working capital loan options.

Also Read:
- How to Get a Small Business Loan in India
- Best Fast Business Loan Options in India for 2025