Because the right capital at the right time can make all the difference.

Starting or growing a business often means needing money—before the revenue arrives. Whether it’s to buy equipment, hire staff, manage working capital, or scale operations, the right business loan can act as a springboard, not a shackle.

But not all business loans are created equal.

Here’s a breakdown of the major options available to entrepreneurs in India (and many of these structures apply globally too), including their use cases, pros, cons, and ideal fit.

1. Term Loans (Secured or Unsecured)

What it is:

A lump-sum loan repaid over a fixed period (1–10 years), used for capital expenditure or expansion.

Where to get it:

Banks, NBFCs, fintech platforms

Pros:

• Lower interest if secured

• Flexible repayment tenures

• Predictable EMIs

Cons:

• Lengthy documentation

• Collateral often required

• Slower disbursement

Best for:

Asset purchases, infrastructure, long-term business expansion

2. Working Capital Loans

What it is:

Short-term financing (usually 6–24 months) to manage day-to-day operational expenses.

Where to get it:

Banks, fintech lenders, NBFCs

Pros:

• Fast processing (especially via fintechs)

• Doesn’t require long repayment tenures

• Useful for seasonal businesses

Cons:

• Higher interest than term loans

• Needs good banking history or turnover proof

Best for:

Inventory, payroll, vendor payments, cash flow gaps

3. Overdraft Facility (OD)

What it is:

A credit line linked to your current account; you borrow only what you need and pay interest only on used amount.

Where to get it:

Banks (usually those where you maintain a business account)

Pros:

• Flexible usage

• Interest on actual amount used

• Renewable yearly

Cons:

• Difficult for new businesses

• Requires strong banking relationship

• Credit limit may be lower than needed

Best for:

Managing short-term liquidity fluctuations

4. Line of Credit (LOC)

What it is:

A pre-approved borrowing limit you can draw from as needed.

Where to get it:

NBFCs, digital lenders, banks

Pros:

• Flexible and revolving

• Interest charged only on withdrawn amounts

• Often less paperwork than OD

Cons:

• Higher interest for unsecured LOC

• May be capped based on revenue history

Best for:

Ongoing projects, uneven cash flows, emergencies

5. Invoice Financing (Bill Discounting)

What it is:

Get advance funds against unpaid customer invoices (typically up to 80–90% of invoice value).

Where to get it:

Fintech platforms (e.g., KredX, RazorpayX), NBFCs

Pros:

• Fast, invoice-backed

• No need for credit score or collateral

• Ideal for B2B businesses

Cons:

• Cost can add up if cycles are long

• Not suitable for cash businesses

Best for:

Businesses with large B2B receivables

6. Merchant Cash Advance (MCA)

What it is:

A loan repaid as a percentage of your daily sales (often via POS machines or online transactions)

Where to get it:

Fintech lenders, NBFCs tied to payment platforms

Pros:

• Dynamic repayment

• Fast approvals

• No fixed EMI

Cons:

• Expensive (can be 20–40% effective interest)

• Only for businesses with steady card/UPI revenue

Best for:

Retail shops, restaurants, service-based outlets

7. Startup Loans (CGTMSE, SIDBI)

What it is:

Government-supported loans or schemes like CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) that help startups without collateral.

Where to get it:

SIDBI, PSU banks, registered lenders

Pros:

• Lower collateral requirements

• Subsidised interest rates

• Linked to schemes like Mudra, Stand-Up India

Cons:

• Slower processing

• More paperwork

• Eligibility constraints (only for MSMEs or registered startups)

Best for:

Early-stage entrepreneurs in formal sectors

8. Equipment or Machinery Loans

What it is:

Specific financing for purchasing tools, vehicles, or business infrastructure.

Where to get it:

Banks, NBFCs, manufacturer-financier tie-ups

Pros:

• Asset-backed (easy to qualify for)

• Longer tenures

• Fixed usage

Cons:

• Limited flexibility (can’t use for working capital)

• Repossession risk if you default

Best for:

Manufacturing, logistics, production-heavy businesses

Choosing the Right Loan: Key Considerations

TL;DR — Too Long; Didn’t Read

• Business loans come in many forms—term loans, working capital, overdraft, credit lines, invoice financing, startup loans, and more

• Choose the loan based on use-case, tenure, cash flow, and flexibility

• Fintechs offer speed, banks offer structure, and NBFCs offer middle ground

• Always compare interest rates, fees, and processing times—and match the loan to your repayment ability, not your revenue dreams