What Are the Types of Business Loans Offered by Banks
Running a business requires continuous funding — whether it’s for expansion, managing daily operations, buying new equipment, or maintaining cash flow. Banks in India offer a variety of business loans to help entrepreneurs and business owners meet these financial requirements smoothly.
In this article, we’ll explain in simple terms what are the types of business loans offered by banks, how they work, and which loan might be the best fit for your business.
A business loan is a financial product that provides funds to individuals, startups, and companies to support their business-related activities. These loans can be secured or unsecured, depending on the lender’s requirements and the borrower’s creditworthiness.
Business loans help entrepreneurs:
Banks offer different types of business loans based on the purpose, repayment capacity, and size of the business.
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Banks in India provide a wide range of business loans to meet the needs of various industries and business sizes. Let’s look at the most common types of business loans available.
A term loan is one of the most popular types of business loans offered by banks. It provides a fixed amount of money for a specific purpose, which is repaid over a set period (term) through monthly EMIs.
Features of Term Loan:
Example: A manufacturing company may take a term loan to buy new machinery.
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A working capital loan helps businesses manage daily operational expenses such as paying rent, salaries, or purchasing raw materials. It ensures smooth cash flow even during low-revenue periods.
Features:
Best For: Traders, manufacturers, retailers, and small business owners.
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Businesses often need heavy machinery or advanced tools to improve production. A machinery loan helps finance the purchase or upgrade of equipment.
Features:
Example: A textile factory buying new stitching machines can opt for equipment financing.
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A business line of credit works like a credit card for businesses. The bank sanctions a credit limit, and the borrower can withdraw funds as needed. Interest is charged only on the amount utilized.
Features:
Best For: Small and medium enterprises with fluctuating cash needs.
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The overdraft facility allows business owners to withdraw money from their current account even when the account balance is zero. It provides quick access to funds during emergencies.
Features:
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Invoice financing, also known as invoice discounting or bill discounting, helps businesses unlock cash tied up in unpaid invoices. Banks lend a percentage (usually 80–90%) of the invoice value to maintain liquidity.
Features:
Example: A logistics company can use invoice financing to pay for fuel or salaries while waiting for client payments.
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A business credit card provides easy access to short-term credit for day-to-day business expenses. It helps maintain a clear record of business transactions and improves credit history.
Features:
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Banks offer MSME loans under government schemes like CGTMSE, Mudra Yojana, and Stand-Up India to promote small business growth.
Features:
Best For: Small business owners, shopkeepers, traders, and women entrepreneurs.
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For entrepreneurs launching new ventures, startup loans offer the financial support needed to get started.
Features:
Example: A tech startup can use this loan to develop its mobile app or hire new employees.
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Trade loans and export finance are designed for businesses involved in international trade. These loans support importers and exporters with working capital and foreign transaction needs.
Features:
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Before applying for any loan, consider the following factors:
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While criteria differ across lenders, common eligibility conditions include:
Meeting these requirements helps you secure quick business loan approval from banks.
A business loan empowers entrepreneurs to grow their business confidently and sustainably.
Understanding the different types of business loans offered by banks is the first step towards making a smart financial decision. Whether you are a small retailer, a startup founder, or a manufacturer, there’s a loan option that perfectly fits your business needs.
From term loans to working capital loans, MSME schemes, and startup funding, banks provide diverse options to help you achieve business growth without financial stress.
Choose wisely, borrow responsibly, and use funds effectively to turn your business goals into reality.
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