What is a Business Loan: A Complete Guide for Indian Business Owners 

Every business, whether small or large, needs timely access to capital to grow. 

There are times when your business may need extra funds, to buy inventory, expand operations, pay suppliers, or cover short-term cash flow gaps. 

A business loan provides financial flexibility. It allows you to manage working capital, invest in growth, and seize new opportunities – all without disturbing your existing reserves. 

For thousands of MSMEs across India, business loans have become a trusted source of financing. 

This guide explains what a business loan is, how it works, its different types, eligibility requirements, and how TallyCapital makes the entire process easier and faster. 

What is a Business Loan? 

A business loan is a type of financing that allows business owners to borrow money from a bank, NBFC, or digital lender to meet business-related expenses. 

The borrowed amount is repaid over time with interest, usually through monthly installments (EMIs). 

In simple terms, a business loan helps you manage both planned and unplanned financial needs such as: 

• Managing daily operations 

• Expanding to a new location 

• Purchasing new machinery 

• Covering supplier or vendor payments 

A well-structured business loan helps ensure your business continues to operate smoothly, even during cash flow fluctuations. 

How Does a Business Loan Work? 

The process of getting a business loan is straightforward. 

When you apply for a loan, the lender evaluates your financial profile, such as business turnover, credit score, and repayment capacity, to determine your eligibility. 

Here’s a step-by-step overview: 

1. Application: You apply for a loan through banks, NBFCs, lenders or any financing solution.
2. Evaluation: The lender assesses your credit profile, business data, and bank statements to estimate risk.
3. Approval: If you qualify, the lender offers a loan amount, tenure, and interest rate.
4. Disbursal: Once approved, the funds are transferred to your account.
5. Repayment: You repay the loan in EMIs over the agreed period. Repayments are usually made monthly through auto-debit or bank transfer. 

💡 TallyCapital simplifies this entire journey, from eligibility check to disbursal, using business data within TallyPrime. 

Why Businesses Avail Loans 

Business loans are not just for financial emergencies. They are a practical tool for growth and stability. 

Common reasons business owners avail loans include: 

Purpose	Example
Working Capital Management	Covering monthly expenses like salaries, rent, utilities, and supplier dues
Inventory Purchase	Stocking up before high-demand seasons
Business Expansion	Opening a new branch, upgrading facilities, or entering new markets
Machinery or Equipment Purchase	Buying or upgrading manufacturing or office equipment
Marketing and Branding	Running digital or offline marketing campaigns
Vendor Payments	Managing delayed receivables or supplier payments
Technology Upgrade	Investing in software, ERP, or automation tools

 

A timely business loan can help maintain business continuity while supporting your long-term goals. 

Types of Business Loans in India 

Businesses have diverse financial needs from short-term liquidity to long-term expansion. Here are the major types of business loans available to Indian MSMEs:

Term Loan

A Term Loan is a fixed-sum loan repaid in regular EMIs over a set period. 

 It can be secured (backed by collateral) or unsecured (based on creditworthiness). 

Features: 

• Fixed loan amount and repayment tenure (1–5 years). 
• Lower interest rates for secured term loans. 
• Predictable repayment schedule. 

Ideal for: Business expansion, asset purchase, or modernizing infrastructure.

Working Capital Loan

A Working Capital Loan is designed to manage your business’s day-to-day expenses, especially when payments are delayed or sales are seasonal. 

Features: 

• Short-term loan (typically 6–12 months). 
• Quick approval and disbursal. 
• No collateral required for smaller amounts. 

Ideal for: Retailers, distributors, or service providers who need liquidity to manage operations.

Loan Against Property (LAP)

A Loan Against Property (LAP) is a secured loan where you pledge owned property sucha as residential, commercial, or industrial to access a higher loan amount. 

Features: 

• Collateral-based loan. 
• Loan amount up to 60–70% of property value. 
• Longer tenure (up to 10–15 years). 
• Lower interest rates. 

Ideal for: Large expansion, debt consolidation, or equipment investment.

CGTMSE Loan (Collateral-Free MSME Loan)

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme enables MSMEs to obtain collateral-free loans through banks and NBFCs. 

Features: 

• Government-backed guarantee to lenders. 
• No need to pledge property or assets. 
• Loan amount up to ₹2 crore. 
• Covers both term loans and working capital facilities. 

Ideal for: Micro and small businesses with limited assets or first-time borrowers.

Overdraft or Cash Credit Facility

An Overdraft (OD) or Cash Credit (CC) is a revolving credit line where businesses can withdraw funds as needed, up to a pre-approved limit. 

Features: 

• Interest charged only on the amount utilized. 
• Limit renewed annually. 
• Provides financial flexibility for cash flow gaps. 

Ideal for: Businesses with regular inflows and outflows such as traders or wholesalers.

Machinery or Equipment Loan

A Machinery Loan allows businesses to purchase or upgrade equipment without depleting cash reserves. 

Features: 

• Often secured by the machinery itself. 
• Tenure ranges between 1–5 years. 
• Fast disbursal for reputed manufacturers. 

Ideal for: Manufacturing, logistics, and production-based businesses. 

 Government-Backed MSME Loan Schemes

The Government of India provides several subsidized loan schemes for MSMEs: 

Scheme	Purpose	Loan Limit	Highlights
MUDRA (Shishu, Kishor, Tarun)	For micro & small enterprises	Up to ₹10 lakh	Collateral-free
PMEGP	For new and small businesses	Up to ₹25 lakh	Includes subsidy component
Stand-Up India	For SC/ST and women entrepreneurs	₹10 lakh – ₹1 crore	Promotes inclusion
CGTMSE	Collateral-free MSME loans	Up to ₹2 crore	Government-backed guarantee

 

These schemes make business finance accessible and affordable for entrepreneurs who lack traditional collateral. 

Summary Table: Loan Types Overview 

Loan Type	Collateral	Tenure	Best For
Term Loan	Optional	1–5 years	Expansion, asset purchase
Working Capital Loan	No	Up to 12 months	Daily operations
Loan Against Property (LAP)	Yes	Up to 15 years	Large-scale funding
CGTMSE Loan	No	Up to 5 years	Collateral-free MSME funding
Overdraft / Cash Credit	Yes	Renewable annually	Managing cash flow
Machinery Loan	Usually yes	1–5 years	Equipment purchase
Govt. Schemes (MUDRA, PMEGP)	No	Scheme-based	Micro and small enterprises

 

Secured vs. Unsecured Business Loans 

Business loans are categorized as secured or unsecured based on whether collateral is required. 

Aspect	Secured Loan	Unsecured Loan
Collateral	Required	Not required
Interest Rate	Lower	Slightly higher
Loan Amount	Higher	Moderate
Processing Time	Longer	Faster
Risk to Borrower	Asset risk if unpaid	No asset risk
Ideal For	Established firms	MSMEs and small businesses

Who Can Apply for a Business Loan 

You can apply for a business loan if you meet the following basic conditions: 

• You are a Proprietor, Partnership Firm, LLP, or Private Limited Company. 
• Your business has been operational for at least 1–2 years. 
• You have an annual turnover of ₹10 lakh or more. 
• You maintain a credit score of 750+. 
• Your business has regular transactions and filed GST/ITR returns. 

Even if you’re a small enterprise, maintaining good financial discipline and consistent records improves your chances of approval. 

Documents Required for a Business Loan 

The documentation process is much simpler today, especially through digital platforms like TallyCapital. 

Basic Documents 

• PAN Card and Aadhaar Card 
• Proof of business registration (GST, Udyam, or Shop License) 
• Bank statements for the last 6–12 months 
• Recent Income Tax Returns 
• Proof of business address 

Additional (for companies or partnerships) 

• Partnership Deed / MoA / AoA 
• Certificate of Incorporation 
• Director/Partner KYC 
• Financial Statements (P&L, Balance Sheet) 

TallyCapital uses TallyPrime data to reduce paperwork and accelerate loan processing. 

Benefits of Taking a Business Loan 

Benefit	Description
Access to Capital	Provides funds when your cash flow is tight.
No Collateral Required	Many MSME loans are unsecured.
Flexible Repayment	Choose tenure and EMI options that suit your business cycle.
Builds Business Credit	Regular repayment improves your credit profile.
Supports Growth	Enables you to invest in expansion, equipment, or marketing.

Also read – Business Loan Myths Debunked: What Every Small Business Owner Should Know

How to Apply for a Business Loan via TallyCapital 

TallyCapital enables TallyPrime users to discover, compare, and apply for business loans directly from their TallyPrime platform. 

Steps to Apply: 

1. Open TallyPrime ‘Charts of accounts’ → Go to TallyCapital  
2. Enter your phone number and verify it through OTP.  
3. View pre-qualified offers based on your business data. 
4. Start your application and fill in the required details digitally. 
5. Get offers from the lending partners and choose your preferred lender.  
6. Get Quick Approval and Disbursal directly into your bank account. 

This digital-first process removes manual paperwork, reduces approval time, and connects you to trusted, RBI-approved lending partners. 

Common Reasons for Loan Rejection 

Understanding rejection factors can help you prepare better: 

• Low credit score 
• Irregular cash flow 
• Multiple loan applications in a short span 
• Non-filing of GST or ITR 
• Mismatch in business and banking details 
• Existing overdue loans 

💡 Maintaining clean financial records in TallyPrime helps prevent most of these issues. 

How to Improve Business Loan Eligibility 

Simple practices can significantly improve your loan eligibility: 

1. Maintain a credit score above 750 
2. Repay EMIs and dues on time. 
3. File GST and ITR regularly. 
4. Keep business bank transactions consistent. 
5. Avoid over-leveraging or taking multiple loans. 
6. Ensure accuracy in your TallyPrime records. 

Why Choose TallyCapital?

TallyCapital connects TallyPrime users to India’s leading lenders, making business financing simpler, faster, and more transparent. 

Advantages include: 

• Pre-qualified offers based on your business data. 
• Minimal documentation and quick approval. 
• Transparent rates and zero hidden fees. 
• Secure, paperless process. 
• Multiple lender options in one place. 

With TallyCapital, MSMEs can focus on running their business while accessing trusted finance seamlessly. 

Frequently Asked Questions 

Q1. What is the minimum loan amount I can get? 

Business loans usually start from ₹50,000 and can go up to ₹50 lakh or more, depending on your business performance and lender eligibility.

Q2. Do I need a collateral for every business loan? 

Not always. Many loans offered via TallyCapital’s partner lenders are unsecured, meaning no collateral is required. However, loans like Loan Against Property (LAP) or Machinery Loans are secured and backed by assets.

Q3. How fast can I get the loan? 

Eligible businesses can receive approval and disbursal within 24–72 hours, depending on the lender.
If you apply through TallyCapital,  your business data is verified through TallyPrime and the process is faster and requires minimal documentation.

Q4. Does my credit score affect approval? 

A credit score of 750 or above improves your chances of approval and helps you secure better interest rates.

Q5. Can I prepay my loan? 

Yes. Most lenders allow early repayment or foreclosure with minimal or no charges.
This helps you save on overall interest costs.

Q6. What documents are required for a business loan?

You’ll typically need:

• PAN & Aadhaar Card

• Proof of business registration (GST, Udyam, Shop License)

• Bank statements (6–12 months)

• ITR or financial statements
  Through TallyCapital, much of this data is pre-verified within TallyPrime, reducing manual submission.

Q7. Can I get a loan if my business is new or small?

Yes. New or small businesses can apply for collateral-free MSME loans under schemes like CGTMSE or MUDRA. Lenders may also assess your business based on turnover, GST filings, and transaction history in TallyPrime.

Q8. How does TallyCapital help me get a business loan?

TallyCapital connects TallyPrime users directly with trusted lending partners to make financing simple and transparent. It helps you:

• View pre-qualified loan offers

• Apply digitally with minimal documentation

• Get quick approvals and disbursal

All directly within your TallyPrime platform.

Conclusion: Credit That Helps You Grow Confidently 

A business loan is not just financial assistance; it’s a growth enabler. It ensures your business never misses an opportunity due to lack of funds. 

With TallyCapital, MSMEs can access fast, transparent, and responsible credit options, right within TallyPrime. 

No paperwork, no intermediaries – just reliable funding tailored to your business.