India has a robust and diversified financial sector that continues to expand rapidly. While the existing financial services organizations continue to strengthen, new entities have entered the market offering innovative financial products. India’s banking sector is projected to become the world’s fifth largest by 2020, according to figures published by IBEF (India Brand Equity Foundation) in February 2017. The article also projected a 17% CAGR (Compound Annual Growth Rate) in bank credit for the medium term, which is expected to result in greater credit penetration.
With the rapid evolution of the financial sector comes several avenues to secure a business loan in India. The interest rate would depend on the type of lender, whether it’s a secured or unsecured loan and the tenure.
How to Get a Business Loan in India
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Traditional Banking Institutions
1. Public Sector or Nationalized Banks: While the interest rates may be lower at these banks, the processing of business loan application and sanction could take time (weeks or months). Among the most popular options here are:
|Name of Bank||Interest Rate||Tenure||Loan Amount|
|Allahabad Bank||11.10% – 15.55%||12 to 84 months||₹1 L – ₹5 Cr|
|State Bank of India||11.20% – 16.30%||12 to 48 months||₹5 L – ₹100 Cr|
|Punjab National Bank||12.60% – 15.60%||12 to 60 months||₹50 K – ₹15 L|
|Bank of Maharashtra||14.50% – 15.50%||12 to 36 months||₹50 L – ₹15 L|
|Andhra Bank||15.75% – 16.00%||12 to 60 months||₹50 L – ₹5 L|
Private Sector Banks: These banks provide excellent customer service and the loan processing is smooth. The downside is that their eligibility criteria are stringent and they discourage (read reject) unsecured business loans. Their minimum loan amount is typically higher than at nationalized banks. Among the most popular options in this category are HDFC, ICICI, Kotak, Axis Bank and IndusInd Bank.
2. Foreign-Commercial Banks in India: Among the largest foreign banks in India are Citibank, Standard Chartered Bank, HSBC, Deutsche Bank and Royal Bank of Scotland.
Alternate Sources of Business Loans
Often, small businesses and startups do not have collateral to offer against loans, have no credit score and cannot meet the stringent eligibility criteria of the banking institutions. Fortunately, alternate sources for business loans have evolved over the years. These firms offer unsecured loans of smaller amounts, with shorter tenures and flexible repayment plans. Their alternative credit scoring system (which collates data from sources like mobile phone records and social media platforms) has been a game changer in the Indian financial sector, according to a report by PricewaterhouseCoopers.
NBFCs (Non-Banking Financial Companies): The NBFCs that have recently gained popularity are Bajaj Finserv, Fullerton, Tata Capital, Capital First and Aditya Birla Finance Limited.
Fintech Firms: Although Fintech firms fall under the NBFC umbrella, they deserve a separate mention. These firms make use of cutting-edge technology for loan application, approval and repayment processes. They provide more customized business loans and schedule repayment as per the receivables of the business. Among the most established fintech companies that offer business loans in India are Capital Float, NeoGrowth and Lendingkart.
A Government Initiative
Mudra Loan: The Government of India has launched the Pradhan Mantri Mudra Yojana, under which one can secure business loans of up to ₹10 lakhs at reasonable interest rates.
Other Sources of Business Loans
Overdraft on Current Account: One can overdraw from the current account. This is an easy source of liquidity, although the interest rate is very high.
Discounting of Accounts Receivables: This source is used by businesses that have to offer their clients long credit periods.
Unorganized Moneylenders: Yes, they are still a source of business loans in India!
Friends and Family: This source of business loans is often used by startups whose founders belong to business families.
So, there you have it. Getting a business loan have become easier than ever before and banks are eager to provide loans to those with solid business plans. All the best! If interested in starting up your own company in India, check out this guide for entrepreneurs.