5 Common Challenges in Securing a Business Loan in India

Successful businesses are not created overnight. Setting up a strong enterprise requires extensive planning and an optimal capital structure, which is mostly composed of business owner’s funds, angel investments, the best-unsecured loan, or a combination of all. When it is the loan that builds your capital, responsible loan management becomes crucial. If done well, it helps to free up cash flow for reinvestment, boosts growth, and fuels expansion. 

While taking up a loan has become simpler, ensuring timely repayment has become a big struggle, especially for smaller businesses. Hence, whether the business is seeking new business loans or repaying older ones, effective repayment scheduling is important as it ensures building a positive brand image, a solid credit score, etc., allowing businesses to meet future borrowing needs and boost credibility. 

Why is smart repayment planning crucial?

When revenue streams decline, economic cycles change, or expenses rise, it may become tough to repay business loans for small businesses. Missing timely payments, however, adds to the financial strain with rising business debts and poor financial ratios. 

Lack of planning for these existing business loans for small businesses can result in –

• Penalties
• Disrupt your financial ratios
• Lower credibility and credit scores
• Problems in securing new business loans
• Disruptions in business operations

With the right planning, small businesses can repay their business loans on time. However, before choosing a repayment plan or strategy, it is important to carefully check the terms and conditions, interest rates, repayment schedules, etc. of your loan. 

Managing loan repayment with smart strategies

A smart repayment strategy is a must to make sure a business runs smoothly without any monetary interruptions. Here are some tips to help you stay on top of your repayments without overburdening your operations:

1. Create a realistic repayment plan

Before taking any loan, assess your business’s monthly income and expenses to determine how much you can comfortably repay. Choose a loan tenure and EMI amount that won’t disrupt your working capital. Avoid overestimating future income while planning your repayment schedule. A well-thought-out plan ensures you don’t default and keeps your credit profile healthy.

2. Maintain an emergency fund

Setting aside a portion of your profits each month in an emergency fund can be a lifesaver. This reserve can be used during low-revenue periods or when unexpected costs arise. It acts as a financial buffer, allowing you to continue loan repayments even during tough times. This proactive step adds resilience to your repayment strategy.

3. Make repayments a part of your operating budget

One of the most effective ways to manage business loans is by treating repayments as a fixed part of your monthly operating expenses. Start by assessing your current financial position, including your cash flow and monthly commitments. Determine a realistic budget that accommodates EMIs without straining other business operations. Factor in seasonal slowdowns and potential contingencies to stay prepared. This approach ensures consistency in repayments and protects your business from sudden financial stress.

4. Prioritise cash flow management

Cash flow is the lifeblood of any business and plays a critical role in timely loan repayment. Without steady and positive cash flow, it becomes challenging to meet existing obligations or qualify for new business loans. To ensure you have funds available for repayments, monitor your cash inflows and outflows closely. Adopt practices like early invoicing and follow-up on payments to maintain liquidity and avoid repayment delays.

5. Make early repayments (if possible)

Opting for early loan repayments can be a smart financial move for businesses. It helps reduce the overall interest burden, allowing you to save money in the long run. By clearing debt sooner, you also free up funds that can be redirected to other investments or operational needs. Additionally, early repayments can improve your debt-to-equity ratio, enhancing your company’s financial health and creditworthiness. It is also recommended to check pre-payment charges for your business loans for small businesses.

6. Keep in touch with your lender

Most institutions provide the ease of repayment of business loans for small businesses if approached early. If you anticipate difficulty in making a repayment, reach out to your lender in advance. Many financial institutions offer temporary relief options like EMI moratoriums, restructuring, or flexible payment plans. 

Tips for securing a strong financial position during loan repayment

Making repayments for a loan involves a heavy cash outflow for any business. In such a situation, it becomes difficult to secure a solid financial position. Here are a few tips that can help you ensure retaining your financial status while making timely repayments simultaneously.

• Review all your existing loans, suppliers, and logistics costs. This is a great idea for securing new savings opportunities.
• Diversifying income by adding new products or services is best. Choose ideas that require minimal capital investments.
• Adequate planning and financial management during peak months help to repay all the new business loans easily during lean months. 

Real-world scenario

Take the example of XYZ cafe, which took ₹10 lakh as a new business loan to cover interior and advertising costs. Instead of waiting for higher profits, the owner set up an auto-deduct repayment schedule to repay all its business loans for small businesses.

The management also created a pudding fund to manage repayments during lean months, which helped to keep cash flows smooth. As a result, XYZ Cafe managed to repay it in 18 months instead of 24 months. This shows how efficient repayment planning can help businesses save on interest and improve their overall credit standing.

Conclusion

Paying off your business loans is easy through careful planning. With the best-unsecured loan from TallyCapital, you can easily manage your short-term liabilities. You can apply directly from TallyPrime, with minimal paperwork and a fully digital process. Enjoy quick approvals, flexible repayment options, and collateral-free funding tailored to your business needs.

With TallyCapital, you get hassle-free business loans and real-time tracking, ensuring a seamless borrowing experience from start to finish.

Having a good business credit score is very important for any company. It shows how trustworthy your business is when it comes to handling money. A strong credit score can help you get loans easily, work with better suppliers, and even get better deals on payments. Whether you’re starting a new business or already running one, improving your business credit score can make a big difference. It helps your company grow, builds trust with banks and partners, and gives you more financial freedom.

In this blog, we’ll walk you through simple steps you can take to improve your business’s credit score. You’ll also learn how to check your credit score free online and keep track of your progress.

Why business credit score matters?

Your business credit score shows how well your company handles money and pays its bills. Just like personal credit scores, it helps others decide if they can trust your business financially.

Banks, suppliers, and even new customers may check your credit score before working with you. If your score is high, they’ll feel more confident giving you a loan or offering you better payment terms.

In short, a good business credit score helps you:

• Get loans more easily
• Pay lower interest rates
• Build stronger relationships with suppliers and partners

That’s why improving and keeping a good credit score is important for every business.

Steps to improve your business credit score

Here are some actions you can take to boost your credit score and make your business look more trustworthy to lenders and partners:

• Register your business properly

Make sure your business is set up legally as a company (like an LLP, Pvt Ltd, or sole proprietorship). Also, get an EIN (Employer Identification Number) as it works like a business PAN number and helps in building your credit record.

• Open a business bank account

Keep your business money separate from your personal money. Use a business bank account for all company-related income and expenses. This shows that your business is well-organised and financially responsible.

• Get a D-U-N-S number

Apply for a D-U-N-S number from Dun & Bradstreet. It’s like a unique ID for your business and is often used by banks and credit bureaus to track your business credit history.

• Use a business credit card

Apply for a credit card in your business’s name and use it for regular expenses. Make sure you pay the bill on time and don’t spend more than you can afford. This helps build a good credit history.

• Work with vendors that report to credit bureaus

When you buy goods or services from suppliers, ask them to report your payment history to credit bureaus. Regular, on-time payments help improve your score.

• Keep an eye on your credit reports

Check your business credit reports regularly to make sure there are no mistakes. If you spot any wrong information, get it corrected quickly to avoid problems.

• Always pay on time

Late payments are one of the biggest reasons for a low credit score. Make it a habit to pay your bills before the due date. This builds trust and keeps your score healthy.

How to check your credit score for free online with TallyPrime?

Did you know you can now check your credit score free online directly through TallyCapital?

TallyPrime makes it easy for business owners to keep track of their credit health without needing to visit multiple websites. With its built-in credit score feature, you can view your business credit card score in just a few clicks—right from your Tally dashboard.

Why use TallyCapital to check credit scores?

• Quick & free access – You can check your credit score free anytime.
• Real-time insights – See updated credit scores and reports to understand where your business stands.
• Business-focused – Get score details that matter for business decisions, loan approvals, and supplier confidence.

Final thoughts

Improving your business credit score isn’t something that can happen overnight—but with the right steps, it’s completely doable. From managing payments on time to keeping your financial records clear, every small action counts. With TallyCapital, you can stay on top of your business finances and even check your credit score online for free without any hassle. When your accounts are well-managed and your credit score is healthy, it becomes much easier to grow your business with confidence.

Getting a business loan is a big step for any small business owner as it can help grow the company, manage cash flow, or invest in new opportunities. However, many business owners hesitate to take a loan because of some common myths and confusion surrounding it. You might have heard things like “loans are only for businesses in trouble” or “you must have perfect credit to qualify.” These statements are not always true and believing them can stop you from getting the help your business needs. Nowadays, business loans are more flexible, accessible, and affordable than ever before. From using a business loan EMI calculator to understanding business loan interest rates, there are tools and options that make borrowing easier, even for small businesses.

In this article, we’ll clear up the biggest myths about small business loans. You’ll learn the facts, get helpful tips, and feel more confident about making the right decision for your business.

Common business loan myths and facts

Many small business owners have several misconceptions about loans and this can stop them from getting the money their company needs to grow.  Let’s look at the most common myths and understand what’s really true.

Myth 1: Business loans are only for failing or struggling companies

This is one of the most common misunderstandings. People often think that only businesses facing losses or financial trouble need loans. However, in reality, even healthy and growing businesses take loans for many good reasons.

You may need a loan to:

• Open a new shop or office
• Buy equipment or vehicles
• Hire more staff
• Stock up on inventory before a busy season
• Improve your cash flow

A business loan can help you take advantage of new opportunities and grow faster. It’s not a sign of failure, it’s a smart way to manage and build your business.

Myth 2: You must have a perfect credit score to get a loan

While having a good credit score is helpful, it’s not the only thing that matters. Many lenders look at your overall business health, not just your credit score.

Creditors may also consider:

• Your monthly income and expenses (cash flow)
• How long you’ve been running the business
• Your repayment history
• Your business documents and bank statements

Some lenders even offer loans to businesses with average or low credit scores. So don’t assume you won’t qualify. It’s always worth checking with different lenders.

Myth 3: Business loans are hard to apply for and take a long time

In the past, applying for a loan was time-consuming and required a lot of paperwork. However, now, the process is much faster and simpler, especially with online lenders.

Many creditors now offer:

• Quick online applications
• Fewer document requirements
• Fast approval and disbursal (sometimes within 1–3 days)

You can apply from your home or office and track the status online. If your documents are ready, the process becomes even smoother.

Myth 4: Business loan interest rates are always high

Not all business loans have high interest rates. The rate depends on many things like:

• Your credit score
• Your business income
• The type of loan
• The lender you choose

That’s why it’s important to compare different loan offers. You can also use a business loan EMI calculator to check how much you’ll need to pay every month. This helps you plan better and avoid surprises later. With the right research, you can find a loan with an interest rate that suits your business needs.

Myth 5: You must provide collateral to get a loan

Many business owners think they need to pledge property or assets as collateral to get a loan. While some loans are secured (which means they need security), many small business loans today are unsecured. Unsecured loans are given based on your income, business strength, and repayment history. You don’t need to pledge any property or machinery. These are a good option for small businesses that don’t own many assets but need quick funds.

Myth 6: Only banks offer business loans

Banks are not the only lenders providing a business loan. Today, there are many other options to obtain loans for small businesses, such as:

• NBFCs (Non-Banking Financial Companies)
• Online loan providers
• Government-backed schemes
• Peer-to-peer lending platforms

These options often have faster processing, less paperwork, and more flexibility than traditional banks. Exploring different lenders helps you find a loan that fits your needs best.

Myth 7: Business loans can only be used for certain things

Some business owners believe they can only use the loan for specific things, like buying machines or stock. However, most business loans can be used for many other operational needs.

You can use your loan to:

• Pay salaries
• Buy raw materials
• Upgrade your business tools or software
• Do marketing and advertising
• Handle day-to-day expenses

Just make sure to check the loan terms with your lender. Some loans (like machinery or working capital loans) may have specific rules, but many are flexible.

Wrapping up

Believing in loan myths can hold your business back. However, once you know the facts, you can make smart decisions with confidence. Whether you’re applying for your first business loan or comparing offers to get the best deal, understanding how loans work is the first step. At TallyCapital, we make business financing simple and stress-free. We work with trusted lenders to provide small businesses with quick, flexible, and reliable loan solutions designed to match their unique needs.

Looking to grow your business with the right financial support? Let TallyCapital guide you every step of the way.

Running a business often means spending money before you earn it. You might need to invest cash for inventory, salaries, rent, equipment, or marketing even before the income starts flowing in. That’s where the necessity of business funding comes in. 

Whether you’re just starting out or already running a business, you’ll likely need extra money at some point. A business loan can help you find that additional fund. However, many business owners make the mistake of waiting until the last minute to secure a loan, only to face a cash crunch. This approach can lead to delays in getting funding, higher interest rates, or even loan rejection. That’s why it’s so important to plan for funding in advance.

Let’s understand why early planning is important and how to do it step by step.

Why planning early for business funding is important?

Planning early for business funding can make a big difference when it comes to the smooth functioning of your company. Thinking about loans only when you’re already short on money can be risky, as it may be too late to secure the best deal—or even get approved at all.

Here’s why it’s important to plan for  a business loan in advance:

1. Loan approvals take time

Getting a business loan isn’t instant. The process involves submitting documents, waiting for checks and approvals, and sometimes even follow-up questions from the lender. Depending on the creditor and the type of loan, it can take a few days to several weeks. If you apply at the last minute, you may not get the money when you need it most.

2. You need time to prepare documents

Most lenders ask for business documents like:

• Income statements
• Tax returns
• Bank statements
• Business registration proof

If your documents are not ready or updated, you might face delays. Planning ahead gives you time to prepare and organise everything properly.

3. Your credit score matters

Lenders check your personal and business credit scores before approving a loan. If your credit score is low, you might get rejected or offered a loan at high interest rates. However, the good news is credit scores can be improved with time. By planning early, you can work on increasing your score before applying.

4. You get better loan choices

If you plan efficiently, you don’t have to take the first loan offer you get. You’ll have time to:

• Compare interest rates
• Check repayment terms
• Choose between secured and unsecured loans
• Avoid high processing fees

This helps you find a loan that fits your business needs without extra costs.

5. You can grab business opportunities

Sometimes, a good business opportunity comes up like buying stock at a discount or opening a second location. If you’ve already planned your funding, you can act quickly without worrying about money. Businesses that plan ahead are always in a better position to grow.

6. Less stress, more control

When you’re not rushed, you can make clear decisions. You’ll have time to review loan terms, ask questions, and understand what you’re signing. This reduces the chance of mistakes or regrets later.

Plan your business funding: A step-by-step approach

Let’s understand the simple steps to plan and apply for a business loan, especially if you’re looking at options like unsecured loans. These steps will help you figure out how much money you need, when to apply, and how to obtain funding.

Step 1: Understand your business needs

Start by asking yourself: “Why do I need this money?”

Some common reasons are:

• To buy inventory or raw materials
• To pay for salaries and day-to-day expenses
• To buy new equipment or tools
• To open a new shop, warehouse, or office

Also, think about how much money you need. Try to be exact. Don’t guess. Use past sales data and your future operational plans to calculate.

Step 2: Know the types of loans available

There are different kinds of loans available for different business needs:

• Unsecured loans: These are loans where you don’t need to give anything as security. You just need a good credit score and business records. The loan approval process is faster but the interest rate may be higher.
• Secured loans: Here, you give something valuable (like a shop or machine) as collateral. These loans take longer to process but usually have lower interest.
• Working capital loans: Short-term loans that help with regular business expenses like salaries, bills, or stock.
• Government schemes: In India, there are special loans for MSMEs (Micro, Small, and Medium Enterprises) with lower interest and easier rules. You can check if your business qualifies for any of those.

Pick the loan type that matches your business goals.

Step 3: Use a business loan calculator

Before taking a loan, use a business loan calculator. This free online tool helps you check:

• How much EMI (monthly payment) you’ll need to pay
• The total amount you’ll pay back with interest
• If you can afford the loan based on your monthly income

It’s a quick way to see if a loan is right for you before applying.

Step 4: Improve your financial health

Lenders want to be sure you can pay back the loan. So, they check:

• Your business income and profits
• Your credit score (personal and business)
• Past tax returns
• Your existing debts, if any

To get your loan approved easily:

• Pay off old debts, if possible
• Keep all your financial documents ready and up to date
• Make sure you file your taxes on time
• Work on increasing your credit score

Doing these things 3–6 months before applying for a loan can greatly improve your chances.

Step 5: Apply at the right time

Timing is everything. You don’t want to wait until your business is low on cash.

Here’s a general guide:

• If you’re starting a new business – Plan at least 6 months early
• If you want to expand or buy new equipment – Start looking 3 to 4 months in advance
• If you need money for working capital – Apply 1 to 2 months before the need arises

Applying early gives you time to:

• Compare offers
• Fix any credit issues
• Negotiate better loan terms

Step 6: Compare loan offers

Don’t rush into the first loan you find. Different lenders offer different:

• Interest rates
• Loan tenures (repayment time)
• Processing fees
• Rules for early repayment

Use online platforms or consult a loan advisor to compare multiple offers side by side. Look beyond just the interest rate, see the total cost of the loan, and whether the terms suit your business.

Final thoughts

Planning ahead for business funding gives you a big advantage. It helps you make smarter decisions, get better deals, and grow your business at the right pace. At TallyCapital, we make that planning easier for MSMEs. Whether you’re looking for an unsecured business loan, comparing different options, or just trying to understand your EMIs using our business loan calculator, we’ve got your back. We help small and growing businesses like yours get access to fast, flexible, and reliable funding with less paperwork and more confidence.

Start planning today, and let TallyCapital guide your way to smart business funding.

Running a small business in India comes with many challenges, and managing money is one of the biggest among them. Whether you want to grow your enterprise, buy new equipment, or cover daily expenses, having enough capital is essential. If you don’t have sufficient funds, exploring alternative financing options—like business loans—can be a practical solution. Access to timely funding can make all the difference between seizing an opportunity and missing out. 

What are secured and unsecured business loans?

When you apply for a business loan, lenders usually offer you two main types of credit: secured and unsecured loans. Each type comes with its own benefits and risks. Understanding the differences can help you choose the right option for your business needs.

Secured loans

In a secured loan, you pledge the lender something valuable as collateral, like your property, machinery, or other assets. If you’re unable to repay the loan, the creditor has the right to seize that asset to recover the money. Here’s what you need to know before applying for this loan:

• You can get larger loan amounts
• Interest rates are usually lower
• You get more time to repay
• There’s a risk of losing the asset if you can’t repay on time

Unsecured loans

In an unsecured business loan, you don’t need to offer any asset as security. The lender gives you the loan based on your credit score, business income, and financial history. Know these things before you apply for this loan type:

• Easier and faster to get, since there’s no collateral check
• You won’t lose any assets if you can’t repay (though your credit score will suffer)
• Loan amounts may be smaller
• Interest rates are a bit higher since the lender is taking more risk

Types of business loans

MSMEs often require financial support to manage operations, expand services, or invest in infrastructure. Understanding the different types of business loans available is essential to choosing the right financing solution. Below is an overview of the most common loan options tailored for MSMEs in India.

Term loans

A term loan is one of the most common types of business financing. You borrow a fixed amount from the lender and repay it in monthly instalments over a specific time. This loan is suitable for long-term investments. Depending on the lender, it can be either secured or unsecured. The interest rate and loan amount depend on your business’s financial health.

• Best For: Business expansion, buying property or equipment 
• Eligibility: Based on business stability and repayment capacity
• Collateral: Optional (can be secured or unsecured)

Working capital loan

Running a business means you constantly need funds for day-to-day operations, whether it’s for paying employee salaries, restocking inventory, or handling rent and utility bills. That’s where a working capital loan helps. This type of credit provides short-term support to keep your business running smoothly, especially during low-revenue periods.

• Best for: Short-term money needs
• Eligibility: Suitable for businesses with regular income and expenses
• Collateral: Not required

Invoice financing 

Sometimes, you provide services or goods to your customers, but payments get delayed. Instead of waiting, you can use those unpaid invoices to get a loan. In invoice financing, the lender gives you a percentage of the invoice amount upfront. Once the customer pays, you can return the loan with a small fee. This improves cash flow and helps avoid delays in your operations.

• Best for: Businesses with long payment cycles
• Eligibility: Requires unpaid invoices from reliable customers
• Collateral: Not required – invoices act as security

Business line of credit

This works like an overdraft facility. The lender gives you access to a credit limit, and you can borrow any amount within that as needed. You only pay interest on the amount you use, not the entire limit.

• Best for: Managing unexpected expenses or seasonal needs
• Eligibility: Businesses with consistent financial records
• Collateral: Not required

Equipment financing 

If your business depends on machines, tools, or vehicles, you may need funds to buy or upgrade them. Equipment financing is a loan specifically for this purpose. The machinery you purchase acts as collateral for the loan. Since the asset secures the credit, lenders often offer favourable terms like lower interest rates and longer repayment periods.

• Best for: Manufacturing or production-based businesses
• Eligibility: Businesses with a need for new machinery
• Collateral: Required

Business credit cards

A business credit card works just like a personal credit card but is used only for business-related expenses. It helps you make quick payments for small purchases, travel, utility bills, and more. It also helps track expenses separately from personal spending, which is useful for accounting and tax purposes. 

• Best for: Managing daily or monthly business spending
• Eligibility: Based on the business owner’s credit score
• Collateral: Not required

How to choose the right loan?

With so many loan options available, it can be difficult to decide which one is the best fit for your business. However, asking yourself a few simple questions can help you make the right choice.

Here’s what to consider before applying for a business loan:

1. Why do you need the loan?

Start by identifying the purpose. Is it for daily operations, business expansion, buying equipment, or managing cash flow gaps? The reason will help you choose between short-term or long-term loans.

2. Do you have assets to offer as security?

If you own property, machinery, or other assets, you can consider a secured loan with better terms. If not, opt for an unsecured loan that doesn’t require collateral.

3. How quickly do you need the funds?

Some types of unsecured business loans like working capital loans or merchant cash advances are usually processed faster. If you need money urgently, these may be better options.

4. Can your business afford the repayments?

Check your income, cash flow, and monthly expenses. Make sure you can handle the loan EMI comfortably without affecting your operations.

5. What’s your credit score and business history?

Lenders often look at your credit history and financial records. A strong credit score increases your chances of approval and may help you get better interest rates.

Wrapping Up

Finding the right business loan can feel challenging, but once you understand your needs and the options available, the decision becomes much easier. Whether you’re looking for a quick unsecured business loan or a long-term secured loan, it’s important to choose a financing option that supports your business goals. At TallyCapital, we’re here to make that decision simpler for you. We partner with trusted financial institutions to offer MSMEs customised loan solutions that are fast, flexible, and reliable.

Ready to take the next step? Let TallyCapital help you grow your business today!

If you’re a small business owner in India, chances are you’ve either taken a business loan or are thinking about securing one. Loans are a common way for MSMEs (Micro, Small, and Medium Enterprises) to manage cash flow, grow their operations, or invest in new opportunities. However, there’s one aspect of a loan that can be confusing to many, i.e., interest rate.

For many Indian MSMEs, understanding how business loan interest rates work remains a challenge. Here, we’ll simplify the concept, helping business owners make smarter borrowing decisions.

Why do interest rates matter to small businesses?

The interest rate on your business loan is the amount the lender charges you on the borrowed fund. It directly impacts the cost of borrowing. A higher interest rate means paying more over time, which can affect the cash flow, profitability, and growth plans of the company.

 Here’s why interest rates are important for small businesses:

•  Loan affordability
  The interest rate on a business loan directly affects the monthly EMI.  A higher rate increases repayment amounts, making loans more expensive. Lower rates improve affordability and reduce the repayment burden.
• Cost of capital
  Higher interest rates increase the total cost of financing operations or expansion of the business. So, controlling the interest expense is crucial for maintaining profitability.
• Profit margins
  When interest rate rises, a larger portion of the business earnings goes toward repayments. This can reduce profit margins, especially for small or low-margin businesses. Lower interest helps preserve more revenue for growth or savings.
• Decision-making
  Knowing the interest rates of different lenders allows businesses to compare loan options effectively. It helps identify the most cost-efficient financing solutions. Smart comparisons can lead to significant savings over time.
• Financial planning
  Predictable interest rates support consistent and reliable budgeting. They help businesses forecast future expenses and plan long-term goals. Fixed rates, in particular, offer financial stability during the loan term.

In short, understanding interest rates helps small businesses make smarter borrowing decisions and maintain financial stability.

Types of business loan interest rates

In India, business loan interest rates come in two types: fixed and floating. Let’s check these in detail.

Fixed interest rate

It is a suitable option for borrowers who prefer predictability and stability in their loan repayments. With this type of rate, the interest remains unchanged throughout the loan tenure, ensuring that the EMI (equated monthly instalment) stays consistent. This makes it easier to plan and manage your finances, as there are no surprises due to market fluctuations. However, the drawback is that you won’t benefit if market interest rates decrease during the loan period.

Floating interest rate

It is ideal for small businesses that are comfortable with some variability and want the opportunity to benefit from declining market rates. This type of rate is linked to market conditions, particularly the Reserve Bank of India’s (RBI) repo rate, and can fluctuate over the loan period. As a result, the EMI may increase or decrease depending on how the market moves. While this flexibility can help you save money when interest rates drop, it also comes with a degree of risk, as payments may rise if rates go up.

Factors affecting business loan interest rates?

Lenders don’t offer the same interest rate to every business. Here are some elements that influence the interest percentage you’ll be charged:

Credit score

Lenders look at both your personal and business credit scores. A CIBIL score above 750 is usually considered good and can help you get a lower interest rate.

Business age and revenue

Older businesses with stable incomes are seen as less risky by lenders. If your business has been profitable for a few years, you’re more likely to get better rates.

Type of loan

Loans backed by security (like property) often come with lower interest rates. These are called secured loans. Unsecured loans, which don’t need collateral, usually have higher rates.

Lender type

Different lenders offer different rates. For example:

• Public sector banks may offer lower rates but take longer to process.
• Private banks may be faster but slightly more expensive.
• NBFCs and fintech lenders often have easier paperwork and fast processes but may charge a bit more.

RBI monetary policy

When the RBI changes the repo rate, loan interest rates across the country also change. If the repo rate goes down, new loans often become cheaper.

How to get a better interest rate?

Here are some simple tips to improve your chances of getting a lower business loan rate:

Improve your credit score

Always pay your bills and EMIs on time. Check your credit report regularly for any mistakes. A strong credit history builds trust with lenders.

Maintain clean financial records

Keep your business accounts, GST filings, and ITRs updated. Lenders often ask for 6-12 months of bank statements and profit and loss reports.

Compare offers

Don’t accept the first loan offer you get. Compare at least 2-3 lenders before making a decision.

Negotiate

Yes, you can negotiate! If you have multiple offers, you can ask your preferred lender to match or lower the rate.

Offer collateral (if possible)

If your business can offer collateral like property, machinery, or stock, you may be able to get a secured loan with a lower interest rate.

Common myths about business loan interest rates

Let’s clear up a few common misconceptions surrounding business loan interest rates:

Myth 1: A lower interest rate means the cheapest loan

Not always. Some lenders may charge high processing fees, prepayment charges, or other hidden costs. 

Myth 2: Only banks give low-interest loans

NBFCs and fintechs can offer competitive rates, especially for businesses with strong digital footprints.

Myth 3: Personal credit score doesn’t matter

For most small businesses, especially sole proprietorships, the owner’s personal credit history is very important.

Myth 4: EMIs stay the same for every loan

EMIs can change in floating rate loans or if there are special terms in your loan agreement.

Real-life example: Ramesh’s stationery business

Let’s imagine that Ramesh runs a stationery wholesale business in Pune. He wants a ₹5 lakh loan to buy stock before the new school season. He compares offers from a public bank (11% fixed rate), a private bank (13% floating rate), and a fintech lender (14.5% fixed rate).

Since Ramesh has a good credit score, updated GST filings, and a three-year-old business with steady profits, he qualifies for all three loans. After reviewing the total cost of each loan, including processing fees and flexibility, he chooses the private bank’s floating rate loan. By understanding the interest rate and making a smart choice, Ramesh saved nearly ₹12,000 over the loan tenure.

Closing thoughts

Understanding interest rates on business loans is the first step to making better borrowing decisions. However, only knowing about it is not enough, you need a trusted lending partner who supports your business goals with the right financing solutions.

TallyCapital provides seamless and reliable financial solutions to Indian MSMEs by partnering with trusted lenders, simplifying access to capital, and empowering businesses to overcome challenges and grow with confidence. Whether you need a business loan or financial guidance, we’re here to support you at every step of your journey.

Seasonal businesses in India often experience high demand during specific times of the year and low or no consumer preference during others. They typically align their sales with holidays, weather changes, school terms, or tourism patterns. These seasonal fluctuations can affect the business’s cash flow, stock, staff needs, and daily operations. While you can’t control the seasons, you can prepare for them. With the right planning and access to a working capital loan, your business can stay strong through both busy and slow periods.

In this article, you’ll learn how to manage your business during seasonal fluctuations.

Challenges faced by seasonal businesses 

Running a seasonal business often comes with ups and downs. While the busy season can bring in lots of customers and profits, the off-season can be tough to get through. Here are some common challenges that seasonal businesses in India often face:

Cash flow stress

When sales go up during festive or peak seasons, everything feels great — but once the season ends, the sales often drop too. Despite this, your expenses like rent, salaries, electricity bills, and loan repayments continue every month. The uneven flow of money can make it difficult to manage your business smoothly throughout the year.

Stock management issues

Before a busy season, you need to stock enough goods to meet customer demand. However, if you buy too little, you might run out of products and lose sales. On the other hand, if you overstock, you may be left with unsold inventory that ties up your capital.  A clothing store, for example, may get lots of orders during the wedding season. If they don’t plan properly, they could either run out of popular items or end up with excess stock.

Hiring workers

When things get busy, you may need more staff to help with the extra work. However, hiring full-time workers for just a few months can be expensive. It can also be difficult to find temporary staff who are skilled and available when you need them. A travel agency, for example, may need extra staff during summer holidays, but hiring them full-time isn’t cost-effective.

Planning for low-demand periods

During the off-season, customer demand can be very low. This means fewer sales, but your business still needs to run. It can be tough to stay motivated and manage expenses when you’re not making enough money to cover the operations. You need to plan so that you don’t feel the pressure when the customers aren’t coming in.

Missing out on opportunities 

Sometimes, a big order or new business may come up unexpectedly. However, if you don’t have enough money to buy materials or hire workers, you may have to turn down the opportunity. This can stop your business from growing.

Why does financing matter during fluctuations?

Seasonal fluctuations bring both challenges and opportunities. Here’s why having the right financing can make all the difference:

Prepare for high demand in advance

A business working capital loan can help you stock up on inventory, hire temporary workers, or run marketing campaigns before the busy season begins. With this support, you’ll be ready to handle bulk orders.

Manage expenses during slow periods

Even in the off-season, your business still has regular expenses like rent, salaries, and bills. A working capital loan can help you cover these costs, ensuring your enterprise doesn’t get affected by periods of dull sales.

Grab growth opportunities

At times, unexpected large orders or new contracts can come your way. With quick access to funds through a business loan, you can accept new business opportunities without worrying about cash flow.

Strengthen supplier relationships

Paying your suppliers on time builds trust and helps you negotiate better deals in the future. A business loan ensures you have the funds to keep those relationships strong, even during the off-season.

Financing options for seasonal businesses 

Seasonal businesses often need extra funds to deal with the busy and slow periods. Different financing options can help you manage cash flow and keep your company running smoothly. To choose the right financing, consider factors like your repayment ability and how quickly you need funds. Here are a few business financing options to consider:

Working capital loan

A working capital loan is a short-term loan that helps you cover your everyday business expenses. It’s especially useful during slower months when your sales drop but you still need to pay rent, salaries, or buy stock. This type of loan ensures you don’t run out of money while you wait for the busy season to come.

Business line of credit

A business line of credit works like a credit card for your business. You’re given a credit limit, and you can borrow as much as you need, up to that specific amount. The best part is that you only need to pay interest on the money you borrow. It’s a flexible option that lets you get funds when your business needs it the most.

Invoice financing

If your customers take time to pay you, invoice financing can help. With this option, you can get an advance on the money your clients owe you. This helps you obtain funds right away, instead of waiting weeks or months to receive the payments from the buyers. It’s a great way to cover costs when your business is waiting on customer payments.

Merchant cash advance

If your company receives most of its payments via credit or debit cards, a merchant cash advance (MCA) could be a suitable financing option. It involves receiving a lump sum upfront from alternative lenders or fintech firms, which is then repaid through a percentage of your daily card sales. This makes it particularly useful for businesses with fluctuating income.

Equipment loans

Sometimes, you might need to buy new machinery for your business, especially before a busy season. Equipment loans help you buy the supplies you need without paying for them all at once. You can pay back the loan over time, so it doesn’t stress your finances.

How TallyCapital can help you with business financing?

At TallyCapital, we understand that seasonal businesses need the right financial support to handle both busy and slow periods. We connect you with trusted financial partners to obtain business working capital loans according to your needs. Whether you’re preparing for a festival rush or handling a long off-season, we can help you find the right loan to keep your business running smoothly.

Bottom line

Managing seasonal fluctuations is essential for the success of any business. With the right planning and business loan, you can stay prepared for both busy and slow periods. This way your business remains stable and continues to grow throughout the year.

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.