Business Term Loan in India: Rates, Eligibility & Apply
Business Term Loan in India: A Complete Guide for Entrepreneurs
A business term loan is one of the most straightforward ways to fund a large capital expenditure, business expansion, or debt consolidation. You borrow a fixed amount, repay it in EMIs over a set period, and the interest rate is known upfront. Simple, predictable, and widely available.
Whether you run a small manufacturing unit or a mid-sized services company, here is what you need to know about business term loans in India.
Overview
A business term loan provides a lump sum disbursement that you repay through fixed monthly installments (EMIs) over a tenure of 1 to 10 years. It can be secured (backed by property, machinery, or other assets) or unsecured (approved purely on business financials and credit score).
RBI guidelines require banks to disclose the total cost of the loan, prepayment charges, and all fees upfront. The RBI’s Fair Practice Code for lenders ensures transparency in the sanction process.
Interest Rates
| Lender | Interest Rate (per annum) | Max Loan Amount |
|---|---|---|
| SBI Term Loan | 9.50% to 14.00% | Rs 25 crore (for eligible businesses) |
| HDFC Bank | 10.75% to 22.50% | Rs 75 lakh (unsecured) |
| ICICI Bank | 10.25% to 19.00% | Rs 2 crore |
| Axis Bank | 14.95% to 19.20% | Rs 75 lakh (unsecured) |
| Kotak Mahindra Bank | 16.00% to 26.00% | Rs 75 lakh (unsecured) |
Secured loans cost significantly less than unsecured ones. If you have property or equipment to offer as collateral, always opt for a secured term loan.
Eligibility
- Proprietary firms, partnership firms, LLPs, private limited companies, and public limited companies are all eligible.
- Business vintage of at least 2 to 3 years with audited financials.
- Annual turnover typically starting from Rs 40 lakh for unsecured loans and higher for larger secured loans.
- Promoter’s CIBIL score above 700 for unsecured loans; above 650 for secured loans.
- Business should be profitable or show improving cash flows in the last 1 to 2 years.
Documents Required
- Business registration certificate (GST, Udyam, MCA registration, or partnership deed)
- Audited financial statements (balance sheet, P&L, cash flow) for the last 2 to 3 years
- Bank statements for the last 6 to 12 months
- ITR for the last 2 years
- Promoter’s KYC: Aadhaar, PAN, and address proof
- Property documents if offering collateral
- GST returns for the last 6 to 12 months
Application Process
- Calculate how much you need. Borrow only what is necessary. Over-leveraging a business is a common mistake. Have a clear plan for how the funds will generate returns greater than the interest cost.
- Prepare your financial documents. Lenders will scrutinize your cash flow statements and banking patterns. Clean, consistent books make a strong case.
- Apply online or at a branch. SBI, HDFC, ICICI, and Axis Bank all have digital business loan applications. Some NBFCs like Bajaj Finserv and Lendingkart process applications even faster with minimal branch visits.
- Loan evaluation and sanction. The bank evaluates your CIBIL score, DSCR (debt service coverage ratio), and overall business health. Secured loans may involve a property valuation.
- Disbursement. The full amount is credited to your business account. Repayment begins the following month.
FAQ
What is the difference between a business term loan and a working capital loan?
A term loan is used for long-term capital expenditures (buying equipment, expanding a facility, acquiring assets) and is repaid in fixed EMIs over multiple years. A working capital loan covers day-to-day operational needs (paying salaries, buying inventory) and is usually revolving or has a shorter tenure.
Can a startup with less than 2 years of operation get a business term loan?
Most traditional banks require 2 to 3 years of business history. However, government-backed schemes like MUDRA and CGTMSE allow startups with shorter operating histories to access collateral-free credit. NBFCs are also more flexible on vintage requirements.
Is there a prepayment penalty on business term loans?
Yes, unlike retail floating rate loans, business term loans can carry prepayment charges typically ranging from 1% to 4% of the outstanding principal. Check the loan agreement for the exact clause before signing.
