MSME loan options in India compared
Business loan products, lender types and guarantee schemes compared on how they work, who they suit and what to watch out for.
This table compares types of business credit and lenders available to Indian micro, small and medium enterprises. It does not rank lenders or show live rates, because your price depends on your business vintage, financials, credit reports, security and the lender's current pricing. Use it to decide which product to ask for, then compare real offers using the Key Fact Statement and the business loan EMI calculator. Select a column header to sort, or filter by keyword.
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| Option | How it works | Good for | Watch out for |
|---|---|---|---|
| Bank term loan, repo-linked (EBLR) | Floating rate = external benchmark + spread; reset at least every three months; EMI or tenure moves with the repo rate | Asset purchases, expansion, businesses with ITRs and audited accounts | Spread can be revised if the lender's credit assessment of you changes substantially; check the reset clause |
| Cash credit / overdraft limit | Revolving limit; interest only on the amount used, calculated on daily balances; limit backed by stock and receivables (drawing power) | Working capital that rises and falls through the month or season | Monthly stock statements, annual renewal fees, and overdue status if the limit stays over-drawn for more than 90 days |
| CGTMSE-covered collateral-free loan | Lender gets a guarantee from CGTMSE on loans to micro and small enterprises up to ₹10 crore; borrower usually bears the annual guarantee fee | First-time borrowers without property to mortgage | Annual fee from 0.37% upwards plus GST; the lender may still ask for a personal guarantee of promoters |
| PM Mudra Yojana loan | Bank, SFB, NBFC or MFI loan for non-farm income-generating micro units: Shishu, Kishore, Tarun and Tarun Plus categories up to ₹20 lakh | Small traders, service providers and micro manufacturers | Mudra is not a subsidy; interest rates are set by the lender; beware agents charging a fee to 'get' a Mudra loan |
| Unsecured NBFC or fintech business loan | Fixed rate, short tenure (often 1–3 years), decided on bank statements, GST data and bureau score; quick disbursal | Urgent needs, businesses with thin documentation but steady bank credits | Much higher APR, processing fees of 2% or more, daily or weekly debits on some products; check the Key Fact Statement |
| Loan against property (business purpose) | Term loan secured by mortgage of residential or commercial property; longer tenure and lower rate than unsecured loans | Larger amounts where cash flow supports a 7–15 year repayment | Your home or shop is at risk under SARFAESI if the loan turns NPA; valuation, legal and stamp duty costs |
| Equipment or machinery loan | Term loan secured by hypothecation of the machine; borrower brings a margin, often 10–25% of cost | Manufacturers and contractors buying productive assets | Margin money and GST must be funded upfront; insurance of the asset is a condition |
| TReDS invoice discounting | Approved MSME invoices on large buyers are auctioned to financiers on an RBI-authorised platform, without recourse to the MSME | Suppliers to large companies and PSUs with long payment cycles | Only invoices the buyer accepts on the platform can be discounted; discount cost is deducted upfront |
| Small finance bank or co-operative bank loan | Same products as large banks; often more flexible on documentation for micro borrowers | Micro units in smaller towns and first-time borrowers | Rates and fees can be higher; some RBI pre-payment protections apply only up to ₹50 lakh at these lenders |
Rules summarised here: RBI's external benchmark requirement for floating-rate loans to MSEs (2019) and medium enterprises (2020); the RBI pre-payment charges directions issued in July 2025 for loans sanctioned or renewed from 1 January 2026; the February 2026 amendment that bars banks from taking collateral on MSE loans up to ₹20 lakh sanctioned or renewed from 1 April 2026; the CGTMSE fee table effective 1 April 2025. Schemes and limits change: check the Reserve Bank of India, CGTMSE, PM Mudra Yojana and the Ministry of MSME before relying on any figure.