Loan for a Small Business in India (2026): Government Schemes, Banks vs NBFCs, and How to Apply

Most small businesses in India borrow at some point — to buy a machine, stock up before the festive season, or bridge the gap while a large buyer takes 90 days to pay. The difference between a good loan and an expensive one is often whether you used the government-backed route. This guide lays out the options from the cheapest and most protected to the fastest and costliest. It covers Mudra, PMEGP, CGTMSE-backed loans, Stand-Up India, PSB Loans in 59 Minutes, SIDBI, and banks vs NBFCs vs fintech apps. You also get the eligibility checks lenders run, the documents to keep ready, and EMI maths in ₹.

Quick answer

For most small businesses, the best loan is a bank loan under a government scheme: Mudra for up to ₹20 lakh without collateral, PMEGP if you are starting a new unit and want a subsidy, and a CGTMSE-guaranteed loan for larger collateral-free credit up to ₹10 crore. Use NBFC or fintech loans only when speed matters more than cost.

• RBI bars collateral on micro and small enterprise loans up to ₹20 lakh

• Banks must decide MSE loans up to ₹25 lakh within 14 working days

• SC/ST and women first-time founders: Stand-Up India, ₹10 lakh–₹1 crore

• Get Udyam registration and check your CIBIL score before you apply

Your options at a glance

Small business loans in India come through three kinds of lenders and a set of government schemes that sit on top of them. A scheme is not a separate lender — a Mudra or PMEGP loan is still given by a bank, which carries the risk, sometimes backed by a government guarantee or subsidy.

Government-backed loans in detail

Mudra loans — up to ₹20 lakh, no collateral

The Pradhan Mantri Mudra Yojana funds non-farm micro enterprises through banks, NBFCs and microfinance institutions. Loans come in four tiers: Shishu up to ₹50,000, Kishore up to ₹5 lakh, Tarun up to ₹10 lakh, and Tarun Plus up to ₹20 lakh for borrowers who have repaid a Tarun loan. There is no subsidy, and the interest rate is set by each lender. The guarantee fee under CGFMU (1% a year) may be passed on to you. Full details in our Mudra loan guide.

PMEGP — a loan with a subsidy for new units

The Prime Minister's Employment Generation Programme helps you set up a new micro enterprise. You contribute 10% of project cost (5% for special categories such as women, SC/ST and ex-servicemen). The bank lends the rest, and the government adds margin money of 15%–35% of project cost depending on category and location. The subsidy is locked for 3 years and then adjusted against the loan. The approved cycle ran to 2025-26; check the KVIC portal for current status — see our PMEGP guide.

CGTMSE — collateral-free loans up to ₹10 crore

CGTMSE does not lend. It guarantees the loan your bank or NBFC gives, so the lender can skip collateral and third-party guarantees. Since 1 April 2025 the cap is ₹10 crore per borrower, and retail and wholesale traders are eligible. A "hybrid" option lets the lender take collateral for part of the loan and cover the rest with the guarantee.

The fee is charged on the guaranteed amount in the first year and on the outstanding amount after that. The lender pays it and may recover it from you. For guarantees approved from 1 April 2025, the standard annual rate is 0.37% a year for loans up to ₹10 lakh, 0.55% for ₹10–50 lakh, 0.60% up to ₹1 crore, 0.85% up to ₹2 crore, 1.00% up to ₹5 crore, 1.10% up to ₹8 crore and 1.20% a year up to ₹10 crore. Risk premiums can raise these rates for accounts that perform worse.

The share of the loan CGTMSE guarantees ranges from 75% for most borrowers to 85% for micro enterprises borrowing up to ₹5 lakh, and 90% for women entrepreneurs. Higher cover makes a bank more willing to lend without security. Loans above ₹50 lakh must be rated investment grade by the lender's internal rating.

Stand-Up India — for SC/ST and women founders

Every scheduled commercial bank branch is expected to lend to at least one SC or ST borrower and one woman borrower for a greenfield enterprise — their first venture in manufacturing, services, agri-allied activities or trading. Key terms from the official scheme page:

• Composite loan (term loan plus working capital) of ₹10 lakh to ₹1 crore, covering up to 85% of project cost
• You bring at least 10% of project cost; other schemes' subsidies can fill the rest of the margin
• Interest: the bank's lowest rate for your rating category, capped at MCLR + 3% + tenor premium
• Repay over 7 years, with a moratorium of up to 18 months
• For a company or firm, at least 51% must be held and controlled by SC/ST or women entrepreneurs

PSB Loans in 59 Minutes

This portal, run with public sector banks, reads your GST returns, income-tax returns and six months of bank statements with your consent. It gives an in-principle approval within 59 minutes for business loans up to ₹5 crore and lets you pick a bank and branch. It is integrated with CGTMSE for collateral-free loans. The approval is not a sanction — the branch still verifies documents — but it saves days of back-and-forth.

SIDBI

The Small Industries Development Bank of India mainly refinances banks and NBFCs that lend to MSMEs, but it also lends directly. Its products include machinery loans, working capital, project loans and green-finance loans, with an online application on its website. SIDBI suits established units with a few years of financials, more than first-time borrowers.

Bank vs NBFC vs fintech: how to choose

Where to borrow

	Public / private bank	NBFC	Fintech app or platform
Pricing	External benchmark (usually repo-linked) + spread for MSE floating-rate loans	Lender's own rate; usually higher than banks	Usually the highest; often quoted monthly or as flat fees
Speed	Days to weeks; RBI decision timeline 14 working days up to ₹25 lakh	Often within a week	Often same day to a few days
Documents	Full: ITR, GST, financials, project report	Fewer; may accept bank statements and GST data	Minimal; data pulled digitally
Collateral	None up to ₹20 lakh; CGTMSE above	Often unsecured for small tickets; CGTMSE-eligible if a member lender	Mostly unsecured, small tickets
Scheme access	Mudra, PMEGP, Stand-Up India, CGTMSE	Mudra and CGTMSE (if member lender)	Limited — check whether it lends itself or only refers you

Pricing

Public / private bank

External benchmark (usually repo-linked) + spread for MSE floating-rate loans

NBFC

Lender's own rate; usually higher than banks

Fintech app or platform

Usually the highest; often quoted monthly or as flat fees

Speed

Public / private bank

Days to weeks; RBI decision timeline 14 working days up to ₹25 lakh

NBFC

Often within a week

Fintech app or platform

Often same day to a few days

Documents

Public / private bank

Full: ITR, GST, financials, project report

NBFC

Fewer; may accept bank statements and GST data

Fintech app or platform

Minimal; data pulled digitally

Collateral

Public / private bank

None up to ₹20 lakh; CGTMSE above

NBFC

Often unsecured for small tickets; CGTMSE-eligible if a member lender

Fintech app or platform

Mostly unsecured, small tickets

Scheme access

Public / private bank

Mudra, PMEGP, Stand-Up India, CGTMSE

NBFC

Mudra and CGTMSE (if member lender)

Fintech app or platform

Limited — check whether it lends itself or only refers you

If a fintech app is only a lending service provider, the actual lender is a bank or NBFC named in the loan agreement. Check that lender on RBI's records and read the full cost before you accept.

Eligibility: what lenders check

Each lender has its own policy, but almost all look at the same five things:

1. Credit history. Your personal CIBIL score (lenders generally look for 750 or above) and, for existing businesses, the CIBIL MSME Rank. Overdue EMIs or settled loans hurt most. See our CIBIL score guide.
2. Business vintage and stability. Most unsecured products want a track record, often two to three years. New businesses should look at PMEGP, Mudra Shishu/Kishore or Stand-Up India.
3. Cash flow. GST turnover, bank credits and how much of your monthly surplus existing EMIs already use. Our loan eligibility calculator applies a typical EMI-to-income test.
4. Formal registration. Udyam registration is what makes you an MSME for priority-sector lending, CGTMSE and the RBI collateral rule — register free if you haven't.
5. Purpose and viability. Term loans need a clear asset or project; working capital is sized on your operating cycle, and RBI allows a composite term-plus-working-capital loan up to ₹1 crore.

Documents to keep ready

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• PAN and Aadhaar of the proprietor, partners or directors; PAN of the business
• Udyam registration certificate
• GST registration and the last 12 months of GST returns (if registered)
• Income-tax returns for the last 2–3 years, with computation of income
• Bank statements for the last 6–12 months for all business accounts
• Balance sheet and P&L (audited, if applicable); provisional figures for the current year
• Project report and machinery or vendor quotations (for new units or term loans)
• Proof of business address — rent agreement or ownership papers
• Partnership deed or MOA/AOA and board resolution (for firms and companies)

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What a loan really costs: EMI examples in ₹

Rates vary by lender, product and borrower, so compare offers on their total cost, not the headline rate. Take a ₹10 lakh loan repaid over five years. The rates below are illustrative, not quotes:

The gap between 10% and 20% is about ₹3.15 lakh — more than the cost of a good machine for many workshops. A CGTMSE fee of 0.37% a year on a ₹10 lakh loan is about ₹3,700 in the first year, much less than a few points of extra interest. Add processing fees, documentation charges and insurance to the comparison.

Try it — EMI on a ₹10 lakh business loan

Loan AmountInterest Rate (p.a.)Tenure

Loan Amount₹10,00,000.00

Total Interest₹3,04,545.38

Total Payable₹13,04,545.38

Number of EMIs60

Monthly EMI₹21,742.42

Open the full EMI Calculator (PDF, save, compare)

How to apply, step by step

From plan to disbursal

1. 1

   Decide the purpose and amount

   Separate long-term needs (machinery, premises — a term loan) from short-term needs (stock, receivables — working capital). Borrow what the plan needs, not the maximum on offer.

2. 2

   Fix your profile first

   Pull your credit report, clear small overdues, file pending GST and ITR returns, and get Udyam registration. These decide both approval and pricing.

3. 3

   Pick the scheme route

   Up to ₹20 lakh: Mudra. New unit with subsidy: PMEGP on the KVIC portal. SC/ST or woman, first venture: Stand-Up India. Bigger collateral-free loan: ask for CGTMSE cover.

   Apply via JanSamarth (Mudra, other schemes)
4. 4

   Apply to two or three lenders

   Use PSB Loans in 59 Minutes or JanSamarth for public sector banks, and approach your own bank branch. Ask each for a written offer with rate, benchmark, spread, fees and tenure.

5. 5

   Compare total cost and terms

   Compare EMIs, total interest, processing and guarantee fees, prepayment terms and any collateral or personal guarantee demanded.

6. 6

   Sign, draw and repay on time

   Read the sanction letter before signing. Set up auto-debit for EMIs — one missed EMI shows up in your credit report and raises the cost of your next loan.

Mistakes that get small business loans rejected

• Applying everywhere at once. Each application triggers a credit enquiry; many in a short window look like credit hunger.
• Cash sales that never hit the bank. Lenders lend on what they can see — route sales through your current account and GST returns.
• Mixing personal and business money. It makes cash flow impossible to assess.
• Agreeing to collateral you don't have to give. For MSE loans up to ₹20 lakh, banks should not ask for it. Above that, ask about CGTMSE cover.
• Paying "agents" for scheme loans. Mudra, PMEGP and Stand-Up India applications are free. No one can guarantee approval for a fee.
• Ignoring receivables finance. If your problem is slow-paying corporate buyers, TReDS lets you sell approved invoices instead of taking a loan.

Official links

• JanSamarth — government credit scheme portalApply for Mudra and other linked schemes
• CGTMSE — scheme document CGS-I (April 2026)Cover, fees, eligibility
• Stand-Up India (Stand-Up Mitra)Scheme features and online application
• PSB Loans in 59 MinutesIn-principle approval up to ₹5 crore
• SIDBI — MSME loansDirect loans and online application
• RBI — FAQs on MSME lendingCollateral, pricing and timelines
• PMEGP portal (KVIC)Apply for PMEGP

What to do next

Start with your numbers. Run the EMI calculator for the amount you need at two or three rates, then check how much a lender is likely to sanction with the loan eligibility calculator. If you are below ₹20 lakh, read the Mudra loan guide next. If you are starting a new unit, read the PMEGP guide before you approach a bank.

This is general information, not financial advice — confirm terms with the lender and on the official scheme pages before you borrow.

Frequently asked questions

Which is the best government loan for a small business?

It depends on your size and stage. For loans up to ₹20 lakh with no collateral, Mudra is the default. If you are starting a new unit and want a subsidy, PMEGP gives 15–35% of project cost as margin money. SC/ST and women founders of a first venture can use Stand-Up India for ₹10 lakh–₹1 crore. Larger collateral-free loans run through CGTMSE guarantees, up to ₹10 crore.

Can I get a business loan without collateral?

Yes. RBI tells banks not to take collateral on loans up to ₹20 lakh to micro and small enterprises. Above that, lenders can cover the loan with a CGTMSE guarantee instead of property, up to ₹10 crore per borrower. The guarantee fee starts at 0.37% a year and the lender may pass it on to you.

What documents are needed for a small business loan?

Expect KYC (PAN and Aadhaar of owners), your Udyam registration, business address proof, GST returns, income-tax returns for two to three years, and six to twelve months of bank statements. New units also need a project report and machinery quotations. Online platforms such as PSB Loans in 59 Minutes pull GST, ITR and bank data directly with your consent.

How long does a bank take to sanction an MSME loan?

RBI's Master Direction says banks should decide on loans up to ₹25 lakh to micro and small enterprises within 14 working days of receiving a complete application. Larger loans follow each bank's board-approved timelines. Portals like PSB Loans in 59 Minutes give an in-principle approval within an hour, but the final sanction still follows the branch's checks.

What interest rate will I pay on a small business loan?

Banks price floating-rate loans to micro and small enterprises over an external benchmark — usually the RBI repo rate — plus a spread that depends on your credit score, collateral and risk. NBFCs and fintech lenders set their own rates and usually charge more. Government schemes do not fix a single rate; Stand-Up India caps it at the bank's MCLR + 3% + tenor premium.

Is there a special business loan for women?

Stand-Up India is reserved for SC/ST and women entrepreneurs setting up a greenfield enterprise. Women also get the highest CGTMSE guarantee cover (90%), and PMEGP treats women as a special category with a higher subsidy and lower own contribution of 5%. Many banks also run women-only MSME products with fee concessions.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 7 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.CGTMSE — Scheme Document CGS-I (updated as on 1 April 2026) — Credit Guarantee Fund Trust for Micro and Small Enterprises · accessed 7 October 2026
2. 2.CGTMSE home page — CGTMSE · accessed 7 October 2026
3. 3.Stand-Up India — scheme features — Department of Financial Services / SIDBI (Stand-Up Mitra) · accessed 7 October 2026
4. 4.PSB Loans in 59 Minutes — PSB Loans in 59 Minutes (public sector banks) · accessed 7 October 2026
5. 5.RBI FAQs — Micro, Small and Medium Enterprises (30 July 2025) — Reserve Bank of India · accessed 7 October 2026
6. 6.SIDBI — MSME loans — Small Industries Development Bank of India · accessed 7 October 2026
7. 7.Pradhan Mantri Mudra Yojana loan limit raised to ₹20 lakh — PIB — Ministry of Finance · accessed 7 October 2026
8. 8.Continuation of PMEGP (2021-22 to 2025-26) — PIB — Ministry of MSME · accessed 7 October 2026