5 Common Challenges in Securing a Business Loan in India

In today’s fast-paced business world, access to capital is crucial for growth and stability. However, what happens when you don’t have assets to offer as collateral? This is where unsecured business loans come in. These financing solutions enable MSMEs to obtain funding without requiring collateral to secure them.

In this blog, we will explore the world of unsecured loans, including their benefits, considerations, and how they are reshaping the financial landscape for Indian businesses.

What are unsecured business loans?

An unsecured business loan is a type of loan that does not require you to pledge any assets as collateral. Unlike traditional secured loans, which require you to put up property or equipment to secure the loan, unsecured loans are based on the borrower’s creditworthiness, business performance, and trustworthiness.

For MSMEs, this can be a game-changer, especially for the ones that don’t have significant physical assets but have a strong financial track record. Some key features of unsecured loans that borrowers must be aware of include the following:

• No collateral required
• Faster approval process
• Flexible use of funds
• Typically shorter loan terms
• Higher interest rates compared to secured loans

The unsecured loan limit: Understanding your borrowing power

The unsecured loan limit refers to the maximum amount a lender is willing to provide without collateral. This limit depends on factors such as:

• Business’s credit score
• Annual revenue
• Time in business
• Industry sector

For example, a well-established MSME with a strong credit history might qualify for an unsecured loan limit of ₹50 lakhs or more, while a newer business might start with a lower limit.

Benefits of unsecured business loans for Indian MSMEs

For many MSMEs, securing financing can be a challenge, especially if the business doesn’t have significant assets. Here’s how unsecured business loans can benefit small and medium enterprises:

1. Quick access to capital

In the fast-paced world of business, timing is everything. Unsecured loans often have a streamlined approval process, allowing you to seize opportunities without delay.

2. No collateral required

One of the biggest advantages of unsecured business loans is that they don’t require you to risk your personal assets. Whether you own property or have expensive equipment, you won’t need to pledge any of it to secure the loan. This reduces the risk of losing valuable assets if your business faces difficulties repaying the loan.

3. Flexibility in fund utilisation

Unsecured loans offer greater flexibility in how the funds can be used. You’re not restricted to a specific purpose like some other types of financing. Whether you need funds for expansion, covering short-term cash flow gaps, or upgrading your equipment, an unsecured business loan can be used for almost any business purpose.

4. Building credit history

Responsibly managing an unsecured loan can significantly boost your business credit score, opening doors to better financing options in the future.

5. Preserving equity

Unlike equity financing, unsecured loans allow you to maintain full ownership and control of your business.

Considerations before opting for an unsecured business loan

While unsecured business loans offer numerous advantages, it is crucial to approach them with a clear strategy:

1. Higher interest rates

The lack of collateral typically means lenders charge higher interest rates to offset their risk. It is crucial to factor this into your repayment plans.

2. Shorter repayment terms

Unsecured loans often come with shorter repayment periods compared to secured loans. Ensure your cash flow can handle the repayment schedule. 

3. Lower loan amounts

The unsecured loan limit is generally lower than what you might secure with collateral. Assess whether the available amount meets your business needs. 

4. Impact on business cash flow

Unsecured loans can help address immediate financial needs, but the higher interest rates and repayment terms can also put pressure on your business’s cash flow. It is essential to evaluate whether your business can handle the financial burden before taking out a loan.

5. Stricter eligibility criteria

Lenders may have more stringent requirements for unsecured loans. Lenders often require a strong credit history, a stable business performance, and a good relationship with your financial institution. For businesses with less established credit profiles, approval may be more challenging.

How to qualify for an unsecured business loan?

Below are the criteria that you must fulfil to be eligible for these loans:

1. Maintain a strong credit score

Both your personal and business credit scores play a crucial role. Aim for a score of 700 or higher for the best terms. 

2. Showcase consistent revenue

Lenders want to see a steady cash flow. Prepare detailed financial statements demonstrating your business’s profitability. 

3. Have a clear business plan

Outline how you intend to use the loan and how it will contribute to your business growth. 

4. Gather essential documents

Typical requirements include documents like:

• Business and personal tax returns
• Bank statements
• Profit and loss statements
• Business licenses and registrations

Application process for unsecured business loans 

Applying for an unsecured business loan in India is straightforward, but it requires careful planning to meet the eligibility criteria. Here’s a step-by-step guide to help you navigate the process:

1. Evaluate your business needs

Before applying, assess why you need the loan. Whether it is for expanding operations, covering working capital, or upgrading infrastructure, having a clear purpose for the loan helps you align the amount and terms with your business objectives.

2. Check your creditworthiness

Lenders in India typically look at your credit score, business financials, and past performance when considering an unsecured loan application. If you have a strong credit history, you’re more likely to secure favourable terms.

3. Choose the right lender

There are several lenders in India offering unsecured business loans, including banks, non-banking financial companies (NBFCs), and online lending platforms. Compare interest rates, loan terms, processing fees, and repayment options to find the best lender for your needs.

4. Prepare documentation

While unsecured loans don’t require collateral, lenders may ask for documents such as:

• Financial statements (Profit & Loss, Balance Sheet)
• GST returns
• Business registration documents
• Income tax returns (ITR)
• Bank statements

5. Submit the loan application

Once you have the necessary documentation, you can submit your application either online or in person as applicable. Some lenders offer quick online applications, making it easier for MSMEs to apply and get approval fast.

6. Wait for Approval

After submission, the lender will review your application and perform a credit check. If approved, they will offer you loan terms, and you can choose whether to proceed with the loan agreement.

Government initiatives supporting unsecured business loans

The government keeps on introducing schemes to support unsecured business loans. Some of them are: 

1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) – This scheme provides partial credit guarantees to lenders, encouraging them to offer unsecured loans to MSMEs.

2. Pradhan Mantri Mudra Yojana (PMMY) – It offers unsecured loans up to ₹10 lakhs to non-corporate, non-farm small/micro enterprises. 

3. Stand-Up India Scheme – It promotes entrepreneurship among women and SC/ST communities, offering unsecured loans between ₹10 lakhs to ₹1 crore.

Case Study: Transforming businesses with unsecured loans

Meet Anita: From local shop to e-commerce success

Anita runs a small handicraft store in Jaipur. With tourism hit by global events, she needed to pivot. An unsecured business loan of ₹5 lakhs allowed her to:

• Build an e-commerce website
• Invest in digital marketing
• Expand her product line 

Result: Within 6 months, Anita’s online sales surpassed her physical store revenue, and she’s now shipping products across India and internationally.

Conclusion: empowering your business growth

Unsecured business loans represent a significant opportunity for Indian MSMEs to fuel their growth ambitions. By offering quick access to capital without the need for collateral, these loans are democratizing access to finance and enabling businesses to seize opportunities in an increasingly competitive landscape.

However, it’s crucial to approach unsecured loans with a clear strategy. Carefully assess your business needs, understand the terms, and have a solid plan for utilizing and repaying the funds.

TallyCapital is committed to empowering Indian businesses with the knowledge and tools they need to thrive in today’s dynamic economic landscape. Whether you’re considering an unsecured business loan or exploring other financial strategies, they support your growth at every step.

Whether you are a new entrepreneur, a small business owner, or someone managing an established company, knowing how to check and improve your business credit score is a skill you cannot ignore. This three-digit number holds the key to unlocking numerous opportunities for your company, from securing favourable loans to negotiating better terms with suppliers.

In this comprehensive guide, you will explore in detail business credit score, why it matters, how to check it, and step-by-step strategies to boost it. Let’s embark on a journey to demystify this crucial aspect of business finance.

What is a business credit score?

A business credit score is a numerical value that reflects your company’s financial trustworthiness. It helps lenders, suppliers, and other business partners determine how likely you are to meet your financial commitments. Think of it as your business’s financial report card, showcasing how responsibly you’ve managed credit in the past and predicting how likely you are to meet your future financial obligations.

Let’s understand through an example:

Imagine you’re surrounded by colourful stalls and the buzz of commerce. Each vendor has a reputation – some are known for their quality products and fair dealings, while others are not so much. In business finance, your credit score is that reputation, represented by a number.

Just as an individual’s credit score can affect their ability to get a mortgage or a credit card, a business credit score can influence whether your company can secure financing, negotiate better terms, and manage cash flow effectively. This score provides a snapshot of your business’s credit history and summarises how you handle debts, pay bills and how you deal with financial responsibilities. 

The higher the score, the better the business’s financial health. Better financing opportunities, lower interest rates, and stronger supplier relationships exist. On the contrary, a poor business credit score means a financial risk that may pose challenges in obtaining loans or negotiating a good deal for your company.

In India, business credit scores usually range from 300 to 900, with higher scores indicating better creditworthiness:

• 750-900: Excellent – Faster loan approvals and lower interest rates.
• 650-749: Good – Reasonable chances of loan approval with fair terms.
• 550-649: Fair – Loan approvals may be harder, and interest rates could be higher.
• Below 550: Poor – High rejection risk or very stringent loan conditions.

Business credit score vs. personal credit score

It is important to note that your business credit score is different from your personal credit score. While personal credit scores are linked to an individual’s financial behaviour, business credit scores are tied to the company’s financial activities

• Personal credit scores are tracked by Permanent Account Number (PAN) and Aadhaar.
• business credit scores are tracked through Company Identification Number (CIN), PAN (for proprietorships/partnerships), and GSTIN.

Why your business credit score matters in India

In the dynamic Indian market, where competition is fierce and opportunities abound, a strong business credit score can be your ticket to success. Here are five key reasons why it matters:

1. Access to better financing

Banks and financial institutions in India use your business credit score to assess risk when considering loan applications. A higher score can lead to more favourable interest rates and terms. In a country where MSMES often struggle with financing, this can be a game-changer.

In 2020, PharmEasy, an Indian health-tech startup, used its strong credit profile to secure funding during the COVID-19 crisis, enabling it to meet rising demand.

2. Improved supplier relationships

Many suppliers check business credit scores before offering trade credit. A good score can help you negotiate better payment terms and discounts, crucial in managing cash flow.

A textile manufacturer in Surat improved its credit score and negotiated a 2% reduction in loan interest, saving ₹10 lakhs annually.

3. Enhanced credibility

In a country where trust is paramount in business dealings, a strong credit score serves as a badge of financial responsibility, potentially opening doors to new partnerships and opportunities.

A Chennai-based electronics firm secured 60-day credit terms from its suppliers after presenting a high credit score, improving cash flow during peak seasons.

4. Attracting investors and business partners

Investors assess your business’s financial health before investing. A strong credit score signals responsible management and can make your company more attractive for funding.

Nykaa, India’s leading beauty and wellness brand, leveraged its solid financial track record to secure private equity investments before its successful IPO.

5. Faster growth

With better access to credit and favourable terms, businesses can seize growth opportunities more readily, which is crucial in India’s rapidly evolving economic landscape.

The credit score check: A step-by-step guide for Indian businesses

Monitoring your business credit score is crucial to maintaining financial health. Now that we understand the importance of a business credit score let us explore how you can check yours. In India, there are several ways to conduct a company credit check:

1. Credit Information Companies (CICs)

India has four primary credit bureaus that provide business credit reports:

• CIBIL (Trans Union CIBIL)
• Equifax
• Experian
• CRIF High Mark

To check your score through these agencies:

2. Visit their official websites
3. Navigate to the business credit score section
4. Fill out the required information about your company
5. Pay the requisite fee (prices vary by agency)
6. Receive your credit report

2. Online financial platforms

Several online platforms in India offer business credit score check as part of their services. These often provide a more user-friendly interface and additional insights. Some of these platforms are:

• TallyCapital
• Credit Mantri
• Paisabazaar

3. Banks and financial institutions

If you have an existing relationship with a bank or financial institution, they may provide your business credit score as part of their services. Some banks offer this information through their online banking portals or mobile apps.

4. Government portals

The Ministry of Micro, Small, and Medium Enterprises (MSME) in India has initiatives to help businesses understand their credit profiles. Check the official MSME website for resources and tools related to business credit assessments.

How to improve your business credit score?

Improving your business credit score is a gradual process requiring financial discipline. There are several strategies you can employ to improve your business credit score: 

1. Pay bills on time: Timely payments are crucial. Set up automatic payments or reminders to ensure you never miss a due date.
2. Maintain low credit utilisation: Try to use less than 30% of your available credit. This shows responsible credit management.
3. Build credit history: Start small with trade credit from suppliers and gradually build your credit profile.
4. Monitor your score regularly: Regular checks can help you spot and address issues quickly. Many credit bureaus offer monitoring services.
5. Separate personal and business finances: Ensure your business has its own bank accounts and credit lines, separate from your personal finances.
6. Dispute inaccuracies: If you spot errors in your credit report, file disputes with the relevant credit bureaus promptly.
7. Diversify your credit: Having a mix of credit types (e.g., term loans, lines of credit) can positively impact your score

Real-world impact: A tale of two Indian businesses

To illustrate the real-world impact of business credit scores in India, let us consider the stories of two fictional small businesses:

Sharma Electronics: The power of a strong score

Rajesh Sharma runs a small electronics store in Pune. When he started his business, he made a conscious effort to build a strong credit profile. He paid suppliers on time, maintained low balances on his business credit card, and regularly checked his business credit score.

When the opportunity arose to expand his store, Rajesh applied for a business loan. Thanks to his excellent credit score of 780, he secured a 20 lakh loan at a competitive interest rate of 9% per annum. This allowed him to open another branch, significantly boosting his revenue.

Gupta Textiles: The struggle with poor credit

Priya Gupta’s textile business in Ahmedabad faced challenges due to a low credit score. Early financial struggles led to late payments and high credit utilisation, resulting in a score of 520.

When Priya tried to secure inventory financing to meet a large order, she was either rejected by lenders or offered loans with interest rates as high as 18%. This made it difficult for her to capitalise on growth opportunities and compete effectively in the market.

These contrasting stories highlight how a business credit score can significantly impact a company’s growth trajectory in the Indian market.

Why partner with TallyCapital?

At TallyCapital, we simplify credit management for businesses. Whether you need a business loan or want to improve your credit score, we provide:

• Wide lender network – Access to the best Indian banks and NBFCs.
• Streamlined processes – Quick and efficient loan approvals.

Conclusion

Your business credit score is more than a number—it is a powerful tool that can unlock growth opportunities for your business. By regularly checking your credit score and adopting responsible financial practices, you pave the way for easier financing, better partnerships, and long-term success. 

Don’t wait for a funding emergency—check your business credit score today with TallyCapital and take control of your business’s financial future.

In the dynamic landscape of Indian business, small and medium enterprises form the backbone of the Indian economy. These small and medium enterprises (SMEs) need to secure a business loan to fuel growth, manage cash flow, or invest in new opportunities. However, securing a business loan in India can be a challenging process, with many small business owners facing rejections from lenders.

Business loan rejection: Reasons, challenges & solutions

Whether you are a startup founder or an established small business owner, knowing the causes of these rejections and implementing proper strategies can help. This guide explores the top five reasons why small businesses in India face loan rejections and provides actionable strategies to overcome these obstacles.

1.   Low credit score: A barrier to loan approval

A credit score is one of the first things lenders check before approving a loan application. It reflects your creditworthiness and financial discipline. If your personal or business credit score is low, banks and financial institutions may perceive you as a high-risk borrower and deny the loan application.

Causes of low credit scores

• Late payments: Missing deadlines on credit card bills, previous loans, or EMIs can negatively impact your credit score.
• High credit utilisation: Using more than 30-40% of your total credit limit can indicate financial instability.
• Multiple loan applications: Applying for multiple loans within a short period results in frequent hard inquiries, lowering your score.
• Lack of credit history: New businesses or individuals without prior credit exposure may struggle with lower credit scores due to limited financial records.

How to improve your credit score?

• Make timely payments: Ensure all credit obligations, including loans and credit cards, are paid on time. Setting up auto-pay can help avoid missed payments.
• Monitor your credit score: Regularly check your credit report from credit bureaus like CIBIL and rectify any discrepancies.
• Reduce debt-to-income ratio: Paying off existing debts before applying for a business loan improves your creditworthiness.

Pro Tip: Consider taking a small loan or credit card and maintain a perfect repayment record to build your credit score.

2. Incomplete or inaccurate documentation: The silent loan killer

Banks and Non-Banking Financial Companies (NBFCs) require various documents to verify a business’s legitimacy and financial health. Missing or incorrect information can lead to automatic rejection.

Common documentation issues:

• Incomplete KYC documents: Missing PAN, Aadhaar, or business registration certificates.
• Incorrect financial statements: Errors in balance sheets, profit & loss statements, or tax returns.
• Lack of proof of revenue: Inconsistent sales records or no bank statements to support claims.
• Outdated business licences: Expired trade licences or GST registration issues.

How to ensure proper documentation?

• Keep financial records updated: update income statements, balance sheets, and other financial records regularly.
• Verify business registrations: Ensure GST registration, business licences, and tax filings are up to date.
• Work with a chartered accountant: A professional can help prepare accurate financial reports and documentation.
• Double-check forms before submission: Check all details before submitting the loan application.

Pro Tip: Always double-check your documents for accuracy and completeness before submitting a loan application.

3. Insufficient cash flow: Lack of support for loan repayments

Lenders evaluate cash flow to determine if a business can meet loan repayment obligations. A business with irregular or inadequate cash flow is considered high-risk, leading to loan denials.

Common cash flow issues:

• Delayed payments from clients: Late payments disrupt revenue streams, making loan repayments difficult.
• High operational costs: Excessive expenses reduce available cash for loan repayment.
• Seasonal business revenue: Businesses that rely on seasonal sales may struggle with stable cash flow throughout the year.
• Poor inventory management: Excess stock without sales ties up capital, impacting cash flow.

How to improve cash flow?

• Use cash flow management software: Tools like TallyPrime help track income, expenses, and outstanding payments.
• Encourage early payments: Offer discounts to customers for early payments to maintain a steady cash flow.
• Cut unnecessary expenses: Review operational costs and eliminate wasteful spending.
• Negotiate payment terms with suppliers: Extend credit periods with suppliers for improved cash liquidity.

Pro Tip: Use cash flow management tools to track and stabilise your inflows and outflows for better loan eligibility.

4. Lack of collateral: The roadblock for traditional loans

Many banks require collateral—such as property, equipment, or inventory—as security against loans. Small businesses that lack significant assets often struggle to meet this requirement.

Common collateral issues:

• No physical assets: Service-based businesses or startups may not have tangible assets to pledge.
• Already pledged assets: Existing loans may have already used available assets as collateral.
• Inadequate asset valuation: Some assets may not be valued highly enough to cover the loan amount. 

How to secure a loan without collateral?

• Apply for unsecured business loans: Some financial institutions offer loans based on business revenue and creditworthiness rather than collateral.
• Explore government schemes: Initiatives like the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) provide collateral-free loans.
• Build a strong business profile: A well-documented financial history and steady revenue can help secure unsecured loans.

Pro Tip: Explore unsecured business loans or government-backed schemes if you lack physical assets for collateral.

5. Unconvincing business plan: The deal breaker for loan approval

A strong business plan demonstrates to lenders that your business is viable, profitable, and capable of repaying the loan. If your business plan lacks clarity or feasibility, lenders may reject your application.

Common business plan mistakes:

• Lack of market research: No clear understanding of the industry, competitors, or target audience.
• Unrealistic financial projections: Overestimating revenue or underestimating costs can raise doubts.
• No clear loan utilisation plan: Lenders want to know how the loan will be used for business growth.

How to create a persuasive business plan?

• Include detailed market analysis: Show clear demand for your products or services.
• Outline clear financial projections: Provide realistic revenue forecasts based on historical data.
• Specify loan usage: Clearly state how the loan will help achieve business goals.
• Seek expert guidance: Consult business advisors or mentors to refine your plan.

Pro Tip: Craft a detailed, data-backed business plan that clearly outlines how you’ll use the loan for growth.

Conclusion: Empowering your business loan journey

Securing a business loan in India may seem daunting, but understanding these common rejection reasons and implementing strategies to overcome them can significantly improve your application. Remember, each rejection is an opportunity to strengthen your business fundamentals.

TallyCapital understands the unique challenges faced by small businesses in India. Its comprehensive financial management solutions can help you maintain accurate records, manage cash flow effectively, and prepare robust loan applications.

Don’t let loan rejections hinder your business growth. With the right strategies and tools, overcome these challenges and secure the required funding to take your business to new heights.

Choosing between a personal loan and an MSME business loan is an important financial decision. Any credit you obtain can influence your financial health, especially if you are an entrepreneur looking to expand your operations or an individual securing funds for personal use. Each loan option has several pros and cons. This article compares personal and business loans to help you decide which is more affordable and best suits your needs.

Breaking down personal loans and business loans

Let’s understand in detail what are personal and business loans in India.

Personal Loan

This is an unsecured type of credit that can be used to fund various purposes like medical emergencies, weddings, house renovations, etc. The approval process for personal loans is relatively quick, making it a popular choice for short-term financial requirements.

Features:

• No collateral required: You are not required to pledge assets.
• Flexible usage: Funds can be used for various financial needs like medical emergencies, travel, education, home renovations, etc.
• Quick processing: Approval and disbursement are quick with minimal documentation.
• Short repayment tenures: The repayment tenure is usually 1 to 5 years.
• Higher interest rates: Ranges from 10% to 25% annually.

Business Loan

It is a type of financing designed to support entrepreneurs or companies to fulfil their business-related expenses like expansion, purchasing equipment, managing cash flow, and maintaining inventory. Business loans can be secured or unsecured, depending on the lender and the borrower’s creditworthiness.

Features:

• Targeted usage: Funds must be used strictly for business-related expenses.
• Higher loan amounts: Often higher than personal loans, depending on the business’s needs and revenue.
• Lower interest rates: Often lower than personal loans, starting at 8% for MSME business loans.
• Long tenures: The repayment term may be up to 15 years.

Comparing personal and business loans

Here is a detailed comparison of the various aspects of personal and MSME business loans.

Interest rates

The cost of borrowing is very sensitive to interest rates.

• Personal loan: It is an unsecured credit type and thus has high interest, starting from 10% to 25%.
• Business loan: A secured business loan — mainly MSME credit usually comes with lower interest rates, beginning from as low as 8%.

Conclusion: Low interest rates make business loans cheaper.

Loan amount

There is a tremendous difference between the amount you can borrow on personal and business loans.

• Personal loan: The minimum loan amount is usually INR 10,000 to INR 50,000 &  the maximum is between INR 40 lakhs and INR 50 lakhs, based on the lender and the creditworthiness of the borrower.
• Business loan: Secured loans tend to offer higher loan amounts, often stretching up to crores.

 Conclusion: Business loans are better suited for large funding needs.

Repayment tenure

Repayment periods affect the affordability of your EMIs. 

• Personal loan: Has a short tenure (1 to 5 years), resulting in high EMIs. 
• Business loan: Flexible longer tenure (up to 15 years) with lower monthly payments.

Conclusion: Cash flow management is better with business loans because of their extended repayment terms.

Collateral

The loan type determines the requirement of collateral.

• Personal loan: No collateral is needed since it is an unsecured loan.
• Business loan: Can be secured or unsecured. Secured loans require collateral such as property, inventory, or equipment.

Conclusion: Unsecured business loans are advantageous.

Tax benefits

Being able to get tax deductions on the loan can help borrowers significantly.

• Personal loan: Most of the time, no tax benefits are available unless the loan is used for a specific reason, such as home improvement.
• Business loan: Business loan interests are eligible for tax deduction, which reduces the effective cost of borrowing.

Conclusion: Business loans offer more tax advantages.

Processing time

• Personal loan: Approval and disbursement are usually quicker due to minimal requirements.
• Business loan: Larger processing time for detailed documentation and evaluation.

Conclusion: Personal loans are perfect for urgent requirements

Usage restrictions

• Personal loan: Funds can be used freely.
• Business loan: Funds must be used strictly for business purposes.

Conclusion: Personal loans offer greater flexibility in usage.

Which loan should you choose?

Your decision for a loan type should be guided by your needs:

• Opt for a personal loan if you need quick cash with no usage restrictions and have a solid repayment plan despite higher interest rates.
• Choose a business loan if you are funding business-related expenses and want lower interest rates, higher amounts, and tax benefits.

A case study: Ramesh’s decision

Ramesh, an entrepreneur, needed INR 30 lakhs for his business expansion. Initially, he considered a personal loan for its quick disbursement and flexible usage. However, after consulting a financial advisor, he opted for an MSME business loan. The lower interest rate of 9% and tax benefits saved him over INR 3 lakhs in interest compared to a personal loan.

This decision reduced his financial burden and allowed him to reinvest savings into his business, accelerating its growth.

Conclusion

Choosing between a personal and business loan depends on one’s ongoing financial needs, repayment capacity, and future objectives. The former comes with the strength of speedy processing and flexibility, while the latter offers better financial advantages, making it easy for borrowers to give businesses a lift.

We at TallyCapital understand the needs of MSMEs and provide customised solutions to grow the business. Whether it’s to know which business loans in India are the best or want access to resources that spur growth, we’re with you at every step.

Check out what we offer and read more about how TallyCapital can support you to reach your financial goals.

One of the biggest obstacles any small business or start-up may experience is acquiring funding. Traditional loans are often secured loans requiring collateral; thus, this may not be a viable financing option for businesses that do not have adequate assets to pledge. Luckily, business loans without a guarantee, also called unsecured business loans, provide a solution for such enterprises.

This comprehensive guide explores everything about business loans without collateral.

What is a business loan without collateral?

A business loan without collateral is a type of business loan that doesn’t require the borrower to provide security like property, equipment, or inventory to obtain it. It is generally called an unsecured business loan. Instead of relying on collateral, lenders evaluate the following aspects of the borrower:

1. Credit score
2. Financial performance of their business
3. Ability to repay the loan

Unsecured business loans are particularly beneficial for small enterprises or startups that don’t have a huge asset base but have great growth potential and a solid financial plan.

Types of business loans without collateral

Several types of unsecured business loans cater to different needs. Let’s explore the most popular options:

Business credit cards

This is ideal for managing smaller, day-to-day expenses. Business credit cards offer revolving credit, which can be repaid and reused as needed.

Line of Credit

This flexible loan option allows you to get funds up to a predetermined credit limit, and  you only pay interest on the amount you borrow, not the entire credit limit. It is especially beneficial for businesses with fluctuating cash flows.

Term loans

These provide a lump sum amount, which can be repaid in fixed installments over a set period. Term loans are suitable for larger investments or projects.

Invoice financing

It helps businesses unlock cash tied up in unpaid invoices. Lenders provide an advance against your accounts receivable, ensuring steady cash flow.

Merchant cash advances

This option offers a lump sum in funding for businesses with high daily transactions. The loan amount can be repaid through a percentage of daily sales.

Why should you pick an unsecured business loan?

Unsecured business loans offer several benefits that make them an attractive choice for entrepreneurs:

Protect your assets

With no collateral required, there’s no risk of losing personal or business assets, even in the event of default.

Quick and easy application

The absence of a collateral evaluation step leads to faster approval, making unsecured loans ideal for urgent financial needs.

Flexible usage

These loans can be used for various business-related purposes, including hiring staff, expanding operations, or purchasing inventory.

Builds creditworthiness

Timely repayments can enhance your credit score, improving your chances of securing larger loans in the future.

Key factors lenders consider for approving unsecured loans

When applying for a business loan without collateral, lenders assess several factors to determine your eligibility:

Credit score

A strong personal and business credit score is essential. It reflects your repayment history and financial discipline.

Business revenue

Consistent cash flow and stable revenue streams assure lenders of your ability to repay the loan.

Time in business

Startups may find it challenging to secure unsecured loans as lenders prefer businesses with an established track record.

Business plan

A detailed business plan outlining your objectives, financial projections, and repayment strategy can strengthen your application.

Debt-to-income ratio

Lenders review your existing debt to ensure you can manage additional loan repayments.

Steps to secure the ideal unsecured business loan

Here are some essential things you must do to find the right unsecured business loan for your business:

Step 1: Assess your financial needs

Determine how much funding you require and what it will be used for. Having a clear purpose can help you choose the right loan product.

Step 2: Research lenders

Compare offerings from different banks, online lenders, and alternative financing platforms. Evaluate factors such as interest rates, repayment terms, and fees.

Step 3: Improve your creditworthiness

Pay off existing debts to reduce your debt-to-income ratio. Address errors on your credit report to improve your score. Also, build a solid business credit profile by paying suppliers on time and maintaining good financial records.

Step 4: Prepare documentation

Gather essential documents such as financial statements (income statement, balance sheet, and cash flow statement), tax returns, business licences, bank statements, and a detailed business plan.

Step 5: Apply for the loan

Submit your application to the chosen lender, ensuring all required documents are accurate and complete.

Step 6: Evaluate loan offers

Don’t just focus on interest rates. Consider factors like repayment flexibility, prepayment penalties, and customer support.

Tips to increase loan approval chances

You can enhance your business loan approval chances by the following methods:

• Build strong relationships with lenders. This can increase their trust in your business.
• Highlight your business’s growth potential and profitability through detailed projections.
• Seek expert guidance by consulting financial advisors or funding specialists to strengthen your loan application.

Conclusion

Securing a business loan without collateral is possible and practical for enterprises looking to gain funding to grow without risking assets. 

At TallyCapital, we identify that every business is unique, with its own set of challenges and opportunities. Thus, we are committed to providing you with modified business loans that cater to your specific needs. Our objective is to help you achieve your business goals, not to burden you with complicated loan structures.

For a businessman, getting the right loan is equally important as employing the right development strategy for the growth and sustainability of the business. If you’re in the midst of growing your company, investing in new equipment, or managing cash flow, a good type of financing can offer you the strength you need to win. Numerous forms of business loans are available; nonetheless, it is important to comprehend the different types and select the one that best fits your company’s requirements.

This blog will discuss the various loan options available to business owners, such as unsecured, MSME, and other business loans specifically designed for micro, small, and medium enterprises. Furthermore, we’ll focus on the criteria for obtaining these loans and all the features concerning them for better decision-making.

Types of loans for businessmen

Finding the right type of loan to finance your business is very important. Below are the most commonly used loans by entrepreneurs:

Unsecured business loans

Entrepreneurs who don’t have assets to offer as security greatly prefer unsecured business loans. These loans are typically easier to apply for and faster to process since they don’t require you to pledge your business or personal property as collateral. The funds can be utilised to finance working capital requirements, business expansion, or technology upgrades.

Eligibility: 

Eligibility criteria for unsecured loans may vary by lender but typically include:

• Credit score: A solid credit score (generally above 650) is required, as this demonstrates the borrower’s ability to repay the loan.
• Business history: Lenders often prefer businesses operating for at least 1–3 years with a track record of revenue generation.
• Revenue: The business should demonstrate strong financial performance with consistent revenue.
• Repayment capacity: Lenders will evaluate the business’s repayment ability based on cash flow and profitability. 

MSME business loans

MSMEs are considered key players in developing many economies in the world. For medium and small scale business owners, MSME business loan offers a great financing solution. These loans typically offer more competitive interest rates than unsecured loans and a flexible reimbursement mode.

MSME loans can often be used for a larger range of financing needs, from equipment purchases to covering working capital.

Eligibility:

• The business must qualify as an MSME per government definitions, which usually depend on factors like annual turnover and the number of employees.
• A strong credit profile and a proven track record of revenue are important for approval.
• The loan amount and repayment terms are often determined based on the size of the business and the purpose of the loan.

Business loans for small businesses

Small businesses often need financing to carry out their operations smoothly, expand their reach, and acquire equipment.  Many lenders offer loans tailored for small enterprises. Business loans for small businesses often have simplified application processes and quicker approval timelines. They also offer flexible repayment terms, which can be adjusted according to your company’s cash flow.

Eligibility:

Eligibility depends on factors like:

• Revenue: Lenders typically demand a minimum annual revenue to ensure the business has the financial stability to repay the loan.
• Business history: A stable business history (usually 1–3 years) is important to demonstrate that the business is capable of generating revenue.
• Credit score: A strong credit score is essential, as it shows lenders that the business is financially responsible.

How to choose the right loan for your business?

The key to choosing the right business loan depends on your unique financial needs, business model, and growth objectives. Here are some steps to help you navigate the process:

Evaluate your business needs

Before applying for any loan, evaluate what your business truly needs. Are you seeking funds to expand into a new market, purchase equipment, or manage day-to-day operations? The type of loan you need will depend on how you intend to use the funds. If you need quick working capital, an unsecured loan might be a good option. If you’re looking to expand your operations or invest in long-term projects, an MSME or small business loan might be more appropriate.

Check your eligibility

Each type of loan comes with specific eligibility criteria. Assess your business’s financial history, credit score, and annual revenue to ensure you meet the basic requirements. Lenders will also consider your industry and business’ age when determining eligibility.

Compare interest rates and repayment terms

The total cost of the loan depends greatly on interest rates. Look out for different lenders and compare the interest rates they offer. 

Consult a financial advisor

If you’re unsure about the best loan option for your business, it’s advisable to consult a financial advisor. The professional can help you analyse your options, assess your eligibility, and provide guidance on securing the most favourable loan terms.

Conclusion: How can TallyCapital help you secure the right business loan?

When it comes to securing business financing, TallyCapital is a trusted partner in guiding entrepreneurs through the loan application process. As a leading platform offering insightful financial solutions, we ensure you have access to the most relevant information and options to make informed decisions.

At TallyCapital, we understand the unique needs of MSMEs and entrepreneurs looking for unsecured business loans. With our expertise in financial planning and loan sourcing, we help businesses streamline their loan application process, making it easier to access the funds they need for growth and expansion.

Growing your business is always an exciting milestone. It signifies success and the ambition to achieve more. However, growth usually requires additional capital. If applying for a business loan is on your to-do list, then you are in good company. Many small and medium enterprise (SME) businesses in India rely on loans to fuel their business. 

This blog simplifies the process of applying for a business loan in India, making it less daunting as you attempt to grow your business.

Why take a business loan to finance an expansion?

Business expansion typically involves increasing production capacity, setting up additional branches, investing in advanced technology, or entering new markets. However, these initiatives require a lot of capital. Business loans are often the best option for funding expansions for the following reasons: 

Access to capital: Expansion loans provide immediate funds without depleting your cash reserves.

Hassle-free repayment options: Loans terms can be tailored to your business needs so that repayments are hassle-free and manageable.

No dilution of ownership: Loans do not require giving away of control or ownership unlike equity funding.

Available business loans in India

It is important to know the types of available business loans before starting the application process. Here are the main types: 

Term loans: Ideal for purchasing machinery or establishing new infrastructure.

Working capital loans: Help run day-to-day activities during the expansion process.

Equipment financing: Covers the cost of acquiring machinery, technology or other forms of tools for the business.

MSME loans: Designed mostly for micro, small and medium-sized enterprises in India.

Overdraft facilities: Flexible loans allow you to withdraw amounts exceeding your account balance.

How to apply for a business loan?

Applying for small business loans in India can be a tedious process. This step-by-step guide simplifies the procedure.

Evaluate what you need

• Establish your expansion objectives and also the amount that is necessary.
• Be clear about the type of loan you need and its relevant features.

Prepare the necessary documentation

• KYC documents: Proof of identity proof and address proof
• Business proof: Submit documents like business registration certificates, trade licence, etc.
• Financial documents: Include invoices, tax returns, bank statements, and profit and loss statements.
• Collateral details: For secured loans, provide asset-related documents.

Check eligibility criteria

• Lenders want your business to be operational for at least three years.
• It is important to have a fair credit score (ranges at 700+).
• You must ensure that constant revenues and profits are prevalent in the accounts.

Explore the different lenders

• Compare interest rates, loan tenure and so on.
• Consider traditional banking, NBFCs as well as digital lenders.

Application submission

• Submit applications online or offline.
• Attach necessary documents.
• Wait for approval (may take days to weeks).

Eligibility criteria for business loans in India

Most lenders in India evaluate applicants based on these criteria:

• Business age: Minimum three years.
• Turnover: Affidavit of continuing business operation and annual audited financial statements.
• Profitability: Prove your ability to repay the loan.
• Credit score: A score of 700 or higher is generally accepted.
• Collateral: Secured loans may require assets as collateral.

How to increase your chances of approval?

Meeting the basic criteria is important. These basic steps can boost your approval chances: 

• Build a good credit history: Pay bills on time and maintain low credit utilisation.
• Maintain organised financial documentation: Comprehensive and current financial records inspire lender’s confidence.
• Choose an appropriate loan product: Match the loan type to your business needs.
• Clearly define loan purpose: Explain how the loan will be utilised and the expected returns.
• Compare multiple lenders: Find the best terms by comparing different offers.

Common problems and possible solutions in applying for a business loan

Entrepreneurs often face problems when applying for business loans. Here’s how to address them: 

• Poor credit history: Pay off existing debts and stay consistent with payments to improve your credit score.
• Inadequate paperwork:  Create a checklist and ensure all documents are ready.
• Inadequate collateral: Explore unsecured loans or alternative collateral options.
• High interest rates: Research better offers or negotiate your loan with lenders.

Advantages of business loans for small business

When utilized wisely, small business loans can yield several benefits: 

• Growth potential: Expand operations, enter new markets, or invest in technology. 
• Effective cash flow: Maintain liquidity, allocating funds for expansion.
• Competitive edge: Improve infrastructure and gain advantage over competitors.

How can TallyCapital help?

Navigating the loan process in India can be daunting, but with the right partner, it becomes smooth. TallyCapital offers customised solutions to meet your business needs:

• Professional consultants to guide you in getting a loan.
• Easy and fast loan approvals 
• Transparent terms and conditions with competitive interest rates.

Conclusion 

This step-by-step guide equips you with the knowledge to confidently approach your first business loan application. Securing the right loan isn’t just about funding- it’s about building a partnership that supports your vision. 

At TallyCapital, we understand that every business is unique. We don’t believe in cookie-cutter loan options. Instead, we focus on your specific needs, offering a range of customised business loans to fuel your growth. Whether you’re looking for a small boost to cover cash flow or a larger amount to drive expansion, we’re here to make the process simple, transparent, and stress-free.

Funding is a crucial component of the capital structure for any business organisation serving as an indispensable requirement for its growth and sustainability. Whether you are planning to expand production, acquire assets, buy new machinery, or simply cover daily operational costs, choosing the right loan can significantly impact your business’s success. Two of the most commonly opted-for loan types are business mortgages and unsecured loans. 

But how do you decide which one aligns with your requirements? This guide explores each option to help you make an informed decision.

What is a business mortgage?

A business mortgage is a type of secured loan that requires borrowers to provide collateral, such as business property, machinery or equipment. This collateral acts as security for the lender in case of default. It is ideal for businesses that need substantial funding repayable over a long period.

Features of a business mortgage

• Collateral-based: Your loan is tied to an asset; hence, lending is done based on the value of the security offered.
• Long tenure: Business mortgages are usually granted for flexible tenures, meaning that the money has to be repaid over several years or even decades.
• Lower interest rates: As the loan is secured based on an asset or property, the interest rates are slightly lower as compared to unsecured loans.

Advantages of a business mortgage

• Affordable interest rates: Business mortgages are cost-effective over the long run. 
• High borrowing limits: These loans provide access to substantial funding, making them suitable for large investments such as buying land or buildings or expanding the infrastructure.
• Flexible repayment terms: The loans normally have longer tenures that help to ease the monthly cash payback pressure.

Disadvantages of a business mortgage

• Risk of asset loss: Failure to meet the required payment could result in the seizure of the collateral.
• Lengthy approval process: Approvals may take weeks or even months due to extensive documentation and property appraisals.
• Limited flexibility: These loans are often restricted to specific purposes, such as asset acquisition.

Understanding unsecured loans

Unsecured loans, as the name suggests, do not require collateral. Instead, lenders access your credit history, credit rating and repayment capacity. These loans are suitable for businesses needing quick access to funds for operational or expansion purposes.

Features of unsecured loans

• Collateral-free: No assets are required as security, making them ideal for businesses with little capital.
• Quick disbursal: Minimal paperwork ensures faster loan processing and disbursement. 
• Short to medium tenure: Repayment periods typically range from 1 to 5 years.

Advantages of unsecured loans

• No collateral required: Ideal for small companies or startups, with no collateral to offer to secure a business loan.
• Faster processing: Reduced documentation enables quick access to funds, often within a week at most.
• Flexibility in usage: Funds can be utilised for various purposes, including marketing, inventory, or payroll management.

Disadvantages of unsecured loans

• Higher interest rates: Because of the associated risks, lenders charge high interest rates.
• Lower loan amounts: Borrowing limits are smaller compared to secured loans.
• Credit score dependence: Approval heavily relies on your financial record and credit score.

Comparing business mortgages and unsecured loan

Key factors to consider before choosing one

When deciding between a business mortgage and an unsecured loan, consider the following factors:

Business needs:

• For long-term investments, such as property purchases, a business mortgage is more suitable.
• For short-term needs, like managing cash flow or operational expenses, an unsecured loan is preferable.

Financial health:

• Businesses with valuable assets can benefit from the various terms of a business mortgage.
• Startups or businesses without collateral should consider unsecured loans.

Repayment capacity:

• Secured loans normally offer small and easy-to-pay EMIs each month with a longer repayment period.
• Unsecured loans have shorter repayment tenures and higher monthly installments.

Conclusion

Choosing between business mortgages and unsecured loans in India depends on your specific business requirements, financial health, and repayment capability. Both options have distinct advantages and limitations.

At TallyCapital, we understand the unique challenges companies face, especially in the Indian market. Whether you’re considering an unsecured loan or a business mortgage, our integrated solutions ensure your needs are met. We strive to provide reliable and effective loan services tailored to your needs. TallyCapital promises customised loans at competitive rates.  You can get quick approvals on loans and expert financial advice at every step.

So, you’ve got a vision! A game-changing product or service is ready to roll out, but there’s one little thing missing—funds to get started. Most successful businesses, from local stores to global giants, began by securing capital to fuel their growth.

Today, new small business loans and startup business loans offer budding entrepreneurs like you the financial push needed to kick things off. But if you’re a small business owner wondering how to navigate the loan application maze, here’s a straightforward guide to help you on your way.

Let’s walk through how to secure MSME loans for startups or new business loans in a simple, step-by-step journey.

Step 1: Know your loan options

Think of loans as different shoes—you wouldn’t wear hiking boots to a beach. As particular shoes suit specific occasions, each loan type serves a different business need. To pick the best fit, let’s break down the main types of loans available for small businesses.

• MSME & SME loans: If you’re running a micro, small, or medium enterprise, this type of loan is tailored for you. It’s designed to fund daily operations or growth projects for smaller businesses.
• Working capital loans: Ideal for day-to-day expenses, working capital loans keep things moving when cash flow is tight. It’s like a safety net for payroll, rent, or other overheads.
• Equipment loans: If machinery or technology is central to your business, an equipment loan can help cover necessary tools or upgrade costs.
• Invoice financing: If you’ve got cash tied up in invoices, this loan type lets you get a large portion of your receivables upfront while the lender waits for customer payments.
• Startup business loans: This is perfect if you’re in the early days of your entrepreneurial journey. These loans give you that initial cash boost to get your business running.

With your loan type in mind, you’re already one step closer to securing your first new business loan. Ready to keep going?

Step 2: Calculate your loan needs with an EMI calculator

Now, let’s talk about loan affordability. Imagine you’re eyeing a piece of equipment or planning an expansion—how much should you borrow? And can you handle the repayments? This is where a business loan EMI calculator becomes your best friend.

Most lenders offer this tool on their websites. Enter the loan amount, interest rate, and tenure, and you’ll see your estimated monthly EMI. Knowing these numbers upfront can help you borrow wisely and ensure you’re comfortable with the repayment schedule.

Pro Tip: Keep your monthly EMIs manageable so your company can grow without financial stress.

Step 3: Get your documents ready

Think of documentation as the ID for your loan application—it tells lenders who you are, what you’re about, and how you plan to succeed. Preparing documents in advance keeps the process smooth and hassle-free. Typically, you’ll need:

• Completed loan application form: This is your first impression, so fill it out accurately and double-check the details.
• Business plan: Be clear about your goals, current standing, and how you’ll use the loan funds. This isn’t just paperwork; it’s your chance to convince lenders you’re on a winning path.
• Financial statements: These give lenders a look into your business’s financial health, so include recent bank statements, tax returns, and balance sheets if available.
• KYC documents: Proof of identity, business registration, and other KYC (Know Your Customer) documents establish you as a reliable borrower.

Step 4: Build a strong business profile

If you’re wondering what happens behind the scenes after submitting a loan application, here’s the scoop: lenders will check everything from your credit score to your business’s track record. It’s all about gauging how likely you are to repay. Here’s what you can do to make sure your profile shines:

• Maintain a good credit score: A score above 700 can be your golden ticket to better loan offers. If it is lower, consider improving it by paying off smaller debts or handling existing credit responsibly.
• Create a detailed business plan: Show how the loan will impact your business. Lenders want to know their funds are going toward growth and success, not just covering losses. Use your business loan calculator to make realistic financial projections.
• Select the right loan type: Choose the loan that matches your purpose. If you’re clear about your goals, you’re less likely to run into bad debt or mismatched repayments.

These steps increase your chances of approval and help you secure a competitive business loan interest rate.

Step 5: Submit and await approval

Once you’ve found the right lender, completed your application, and gathered documents, it’s time to hit submit! Nowadays, many lenders offer a seamless online application process, meaning you can apply for new small business loans from the comfort of your office or home.

What to expect next:

• Verification: Lenders will verify your documents digitally or by reaching out.
• Approval and disbursement: Once everything checks out, your loan is approved, and the funds are coming!

If there are any hiccups, don’t hesitate to keep in touch with your lender—they’re often willing to answer questions and work with you on the finer details.

Conclusion

With this step-by-step guide, you’re now equipped to approach your first business loan application with confidence. Remember, securing the right loan is about the funds and building a partnership supporting your vision.

At TallyCapital, we understand that every business is unique. We don’t believe in cookie-cutter loan options. Instead, we focus on your specific needs, offering a range of customised business loans to fuel your growth. Whether you’re looking for a small boost to cover cash flow or a larger amount to drive expansion, we’re here to make the process simple, transparent, and stress-free.

Are you looking for small business loans to grow or expand your business? You will find a plethora of choices. While traditional banks have always been available to offer loans, you will find many more options today, such as finance companies, non-banking finance corporations, private lenders, and more.

One of the first questions that might pop into your mind is whom to approach for a business loan. Should you go to a traditional bank, or will a modern/advanced finance company suit your needs?

This blog will help you understand more about choosing the right option when seeking financial assistance for your business.

Before we get into the details, here is the answer to the main question—we cannot pinpoint one particular option and declare it the best loan provider. The choice will depend on your business’s requirements and other factors. We will see more of these in the following sections.

Bank vs finance company

Wondering which one offers the best business loans? Here are some factors you should consider before choosing the one that suits your requirements the best.

Size and age of business

If you have been in the business for a long time, and if the size of your business is quite big, you can choose a bank for financial assistance. Traditional financial institutions like banks look for the history, long-standing nature, creditworthiness and size of the businesses before approving their loan application. 

However, if you are a newbie and don’t have much credit history to show, you can approach a finance company for your loan. Yes, the interest rates may be higher than what banks would charge you, but you can be assured that your loan application will not be rejected by these companies. If you are looking for a small business loan, a finance company would be the better choice for you.

Documentation and collateral requirements

Banks require you to submit detailed documentation, business reports (like financial statements, tax return copies, etc.) and collaterals before approving your business loan. The process of loan disbursement is slightly longer here, because banks need to check all these documents, verify the authenticity and then proceed to approving the payment. So, if you have enough documentation and collateral, the banks require, you can approach them for your business loan requirements.

However, if you have a newly established small business, you may not have the necessary financial documentation and collateral that banks demand. In that case, you can opt for a finance company for financial assistance. This is because the loan formalities of these lending agencies are quite flexible, and most don’t require businesses to submit any collateral before approving loans.

Affordability

You will notice a stark difference in the interest rates charged by finance companies and banks when you apply for a business loan. The former often has higher interest rates than the latter because of their flexible processes, quicker process time, simpler documentation, non-requirement of collateral and other reasons. 

On the other hand, banks charge reasonable interest rates because they follow a more systematic and rigorous loan approval process. You can opt for a finance company if you can afford the high interest rates they charge. Small businesses may not be eligible for business loans from banks; hence, it is highly recommended to go for finance companies only if the interest rates fall within your budget.

Waiting time

Are you in urgent need of a business loan in India? Approaching a bank may not be the right option for you in that case! Even if you submit all the documentation on time, banks take a long time to check and verify it before sanctioning the required loan amount. Usually, you receive the funds in your account only after a few weeks from submitting all the documents and financial reports.

Finance companies, on the contrary, have quicker processing times because their loan approval process is very flexible. Once you have submitted the basic information required by these firms, you can expect the funds to be credited to your account within 24 to 48 hours. So, if you are hard-pressed for funds in your business, approaching a finance company would be the right option.

Conclusion

As you can see, banks and financial companies have their own merits and demerits when it comes to loan approvals. Hence, it is always better to assess your requirements first and then choose your lender wisely for the best possible results. For example, business loans for small business owners may be more practical when taken from a finance company than a bank.

If you are a small business looking for quick business loans, you can approach TallyCapital right away. If you are using TallyPrime as your business software, all you need to do is select the add-on feature, TallyCapital, for quick business loans. 

Once you check your eligibility and apply for your business loan here, TallyCapital connects you with the relevant financial partner to ensure you get the funds into your account as early as possible. 

Running a business can bring new challenges every day—unexpected expenses, seasonal fluctuations in sales, or just the usual hustle to keep everything running smoothly.

A working capital loan can be the perfect solution for businesses to meet short-term cash needs without tapping into funds reserved for long-term goals. Whether you’re facing a sudden office renovation, payroll expenses, or a slow season, this loan could be your secret weapon for keeping everything on track and thriving.

What exactly is a working capital loan?

Simply put, a working capital loan is a short-term loan designed to cover a business’s everyday expenses. Unlike a credit for purchasing a new property or large equipment, this loan is strictly for funding your company’s day-to-day needs. It’s a flexible solution that doesn’t limit you to specific expenses; instead, you can decide how best to put it to work in your business.

Financing options such as working capital term loans, revolving credit lines, and other business working capital loans help keep your business operations steady, even when cash flow is tight. These loans don’t require any long-term commitment and allow you to handle immediate needs or emergencies, making them particularly useful for small businesses and MSMEs.

Why might your business need a working capital loan?

Imagine having the perfect opportunity to buy discounted inventory or needing to hire additional seasonal staff. Without accessible cash, you might miss out on these advantages. This is where working capital loans enable the business to make moves without waiting for time to replenish cash. Below are some situations when a working capital loan can be useful:

• Seasonal sales cycles: Some businesses, like retail or tourism, perform well or poorly at certain times of the year. When sales go down, a working capital loan allows you to pay for overheads like rent, bills, and wages.
• Business growth: Growth inevitably requires additional costs. A working capital loan can help meet the operational costs of business expansion, allowing you to make profits over time instead of using reserves to expand and grow.
• Dealing with contingencies: Things like machinery breakdowns, key employee absences, or even the failure of a particular order to be completed may hinder sales revenues. A working capital loan helps a business have the necessary dependents for its activities to run smoothly without any hindrance.

Types of working capital loans: choosing the best fit for your business

1) Working capital line of credit

Think of this as a business credit card with a more flexible and larger credit limit. A line of credit is available whenever you need it and doesn’t require re-approval each time, so you’re free to access it as cash flow demands. This makes it an ideal fit for businesses facing unpredictable expenses.

2) Working capital term loan

Consider a working capital term loan for a structured, one-time cash infusion. You receive a lump sum upfront and then can pay it back over a fixed period. This is ideal for businesses with defined cash flow issues or one-time expenses. It offers predictability with a fixed interest rate, allowing you to plan your finances efficiently.

3) Invoice factoring

If you’re waiting for bills, invoice factoring lets you unlock immediate cash by selling those invoices to a lender. This approach provides cash flow support without taking on traditional debt, which can benefit businesses with larger receivable outstandings.

4) Merchant cash advance (MCA)

With an MCA, you receive a cash advance based on your future revenue. You can repay by giving a portion of your daily sales, so it’s well-suited for businesses with daily transactions. However, it’s essential to consider the costs and potential impacts on cash flow.

Pros and cons of working capital loans

Pros

• Flexibility: A working capital loan helps cover anything from payroll to seasonal stock.
• Quick access: Some lenders can provide same-day or next-day approval, giving you fast access to funds when needed.
• Less collateral required: Many working capital loans don’t require significant collateral, allowing smaller businesses without large assets to gain funds.
• Preserve ownership: Unlike equity financing, working capital loans allow you to maintain full ownership of your business.

Cons

• Higher interest rates: Short-term loans often have higher rates than traditional ones.
• Short repayment periods: Short terms mean you must be prepared to pay it back quickly, so consider your cash flow when choosing a loan.
• Risk of debt cycle: Frequent borrowing can lead to a debt cycle if improperly managed.

When to secure a working capital loan for your business?

If your business is cyclical, frequently encountering occasions where expenses outstrip revenue, a working capital loan might be just what you need. Startups, SMEs, and MSMEs also often benefit from these loans because they provide a financial lifeline for maintaining operations and growing. Here are some ideal times to consider applying:

• Managing operating expenses: When you have to cover essential expenses like payroll, rent, or utilities during slower months.
• Seizing growth opportunities: when hiring new staff or buying inventory when demand spikes.
• Handling unexpected repairs or delays: To keep the business steady during emergencies or waiting for payments.

How to apply for a working capital loan?

Applying for a working capital loan is straightforward. You can approach traditional banks, online lenders, or credit unions. Generally, online lenders provide faster approval and funds than banks, but they may come with higher interest rates.

Banks or credit unions are good choices for businesses with strong credit histories and competitive rates.

To apply, you’ll need basic financial documents, such as profit and loss statements, balance sheets, and proof of revenue. Once approved, you can typically access funds within a few days, depending on your lender.

Conclusion

At TallyCapital, we know that every business is unique. That’s why we don’t believe in one-size-fits-all solutions. Instead, we work with you to understand your specific needs and goals, crafting business working capital loans that suit your situation.

Our approach ensures you get a straightforward, effective loan option tailored to help you grow without unnecessary complexity. Contact TallyCapital today, and let us help you confidently reach your business goals!

Applying for a startup business loan in India as an entrepreneur can be challenging if you don’t have a fair idea about the credit types available and their terms. With countless options out there, comprehending the eligibility criteria, necessary documents, and application process can be critical in enhancing your chances of getting through. This is a complete guide to business loans for startups in India, covering basic tips for new entrepreneurs like you.

Eligibility for a business loan

You must satisfy certain essential business loan eligibility criteria to get fund approval. These are:

• The age of existing businesses should not be more than five years.
• Annual turnover/ revenue should not exceed INR 25 crores in a single financial year.
• Business loans are available only to Limited Liability Partnerships (LLPs) or Private Limited companies, not proprietorships or partnership accounts. 
• Eligible applicants should also obtain DIPP approval.
• Government startup loans need certain guarantees.

Documents required for business loan

While applying for a startup business loan, you will be required to submit the following documents: 

• Photographs: Two passport-size copies
• Identity proof: PAN card, passport, aadhaar card, voter’s ID, driving license 
• Address proof: passport, driving license, aadhaar card, postpaid phone bill, voter’s ID
• Bank statement: Last six months 
• Income proof: Income tax returns, salary slips, PAN card 
• Proof of bank account:  Cancelled/scanned cheque, passbook’s front-page copy 

Factors determining the approval of business loans

Whereas sanctioning business loans remains exclusively at the discretion of the financial institutions, several factors go a long way in affecting your odds of availing of the credit. The following are five of the most important factors you need to know:

Nature of the business: The kind of business you seek a loan for may be the most important factor determining the business loan approval. This is because the magnitude of risk varies for each type of company or industry they are in. A bank may become unwilling to lend money to certain high-risk businesses. 

Profitability: Your net profit can directly affect how much credit you get. Financial institutions have a minimum turnover eligibility for sanctioning loans. The higher your profitability, the better your chance to get that elusive business loan.

Credit history: Banks and other financial institutions provide loans only when they are pretty much assured that the entrepreneur can repay the amount. This surety is mostly assessed through the CIBIL score of the applicant. Having a high CIBIL score can help you get a business loan.

Business plan: Often, the companies that lose out on a loan sanction are those that fail to draft a well-formatted business plan. Properly writing a business plan, coupled with intentions on how the loan could be used, helps move the decisions in favour of the applicant.

Documents: Like all types of loans, the success of getting business loans depends on the documents the businessperson submits to the lending institution. Have all the necessary paperwork ready before going to the lender to secure a loan for your business.

Recommendations for new entrepreneurs

It seldom happens that a budding entrepreneur successfully gets a business loan sanctioned. A few suggestions that can increase your chances of getting credit approval are: 

Prepare a good business plan: A thorough business plan will help you get a business loan. This should be a document that shows your business goals and financial projections and describes how you plan to use the money from the loan.

Maintain a good credit score: Maintaining a good credit score can help you obtain a business loan. So, don’t let a payment of a bill or an installment get delayed. 

Prepare a complete loan application: Ensure that your loan application is very comprehensive and carries all essential documents. 

Learn about the government loan schemes: The Indian government offers various loan schemes for MSMEs and startups. MSME loans for startups are also available. Learn about them and apply accordingly.

Use professional services: If you are a novice in the world of business, get professional help. Reach out to a financial advisor or a business consultant and increase the chances of getting your business loan approved.

Conclusion

Acquiring funding through business loans during the initial phase of a business can sometimes be very challenging. However, once you know how to become eligible for a business loan, what documents will be needed, and what other government schemes exist, you are well on your way to getting that fund. With the right approach and a little patience, you can secure funds for your venture.

At TallyCapital, we believe that every business is unique, with different challenges and potential. Thus, we provide customised business loans that fit your needs. We won’t stuff you with complicated loan structures; instead, we help you realise your business goals by listening to what you need and carefully formulating solutions that will best suit your needs.

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