India is the fifth largest manufacturing country. This sector has been growing at an average of 7%-8% annually. As a developing country, there is a huge opportunity for manufacturers to use the increasing demand, both locally as well as globally. However, most of them face difficulties due to insufficient capital thereby not being able to grow their business. 

In such cases, their only choice is to secure a business loan. This will solve most of their issues by providing the necessary capital required for them. Using this fund they can grow their business by upgrading to the latest technologies, hiring new talents, and using better raw materials which all help them in staying competitive in this huge market.

Types of Business Loans for Manufacturers

Nowadays, there are various types of business loans available, each with its purpose. A manufacturer can select any one of them depending on their specific need and requirements. Here are some of the primary options for a manufacturer to consider when taking a business loan:

  • Working Capital Loans:

A working capital loan is a short-term loan used to finance the day-to-day expenses of the business. Generally, these loans are not used to buy long-term assets or machinery, but instead used for working capital requirements. It involves expenses like buying raw materials, wages and salaries, rent, utility bills, etc. 

The cash flows of manufacturing businesses always fluctuate as they depend on production cycles, sales periods and customer payments. Having a working capital loan during these times helps to maintain the smooth operation of the business. 

  • Equipment Financing:

Equipment financing is a type of loan designed specifically to help businesses purchase or lease machinery and equipment needed for the production process. However, these types of loans do not require any collateral as the equipment itself is the security for the loan. Equipment financing is one of the best ways for manufacturers to upgrade their equipment to the latest technology which can increase the overall productivity of the business. Additionally, the interest paid on such loans is tax deductible. 

  • Term Loans:

Term loans are the most popular as well as traditional way of lending money. It is a type of loan where a business receives a lump sum of money in advance and agrees to pay it after a specific time period. These types of loan schemes can be short-term as well as long-term ranging from 1-15 years or even longer. Manufacturers use term loans when they need long-term capital funding as they can spread the cost over a long period which makes it easier to manage cash flow.

Top Banks Offering Business Loans to Manufacturers

Several top banks in India offer business loans for manufacturers. These loans help manufacturers get the funds for expansion, buying equipment, managing working capital, etc. Below is a list of some top banks that offer business loans for manufacturers. For more details refer to their official sites:

  • HDFC Bank Manufacturer Loan
  • Axis Bank business loan
  • SBI Business loan
  • Bajaj Markets Business Loan for Manufacturers
  • ICICI Bank Business Loan
  • Kotak Mahindra Bank Business Loan
  • Bank of Baroda MSME Loan
  • Punjab National Bank Business Loan
  • IIFL Finance Manufacturer Loan

Government Loan Schemes for Manufacturers

  • MUDRA Loan

MUDRA is a loan scheme launched under the PMMY by the Government of India. The main objective of MUDRA is to support small and micro enterprises across the country by providing reasonable and easily accessible credit. The key features of this loan scheme are:

  • Loan amounts up to 10 lakhs
  • Interest Rate varies between 8% to 12%
  • Loan tenure ranges between 3 to 5 years
  • No collateral required

  • Stand-Up India Scheme

Stand-up India scheme is a scheme that will be useful for SC/ST and women sole proprietors. This scheme was launched by the government of India to promote entrepreneurship specifically among women, Scheduled Castes (SC), and Scheduled Tribes (ST). The main of the scheme is to provide financial assistance to these underrepresented groups to start or expand their business. The key features of this loan scheme are:

  • The scheme is only eligible for SC/ST and women entrepreneurs 
  • Loan amount up to Rs. 1 crore
  • Interest Rate varies between 8.5% to 10%
  • Loan tenure up to 7 years
  • No collateral required

  • Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE)

CGTMSE was launched by the government of India under the Ministry of Micro, Small and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI). Entrepreneurs who are engaged in activities such as manufacturing, retail trade, and service sectors are eligible for this scheme. The key features of this loan scheme are:

  • Loan amount up to Rs. 2 crore
  • Interest Rate varies between 10% to 14%
  • Generally, the loan tenure is up to 7 years
  • No collateral required
  • Annual guarantee fee of 0.37%

Eligibility Criteria

To avail the above-stated loan schemes, there are some eligibility criteria. Even though each scheme may have its specific requirements, most of them share common criteria. Below are some of the general eligibility conditions for these loans:

  • The applicant must be between the age of 18 and 65. Some loans have a minimum age requirement of 21. 
  • He/she should be an Indian citizen.
  • The business must be owned and registered in the applicant’s name.
  • The applicant should have a good credit history. This point is really important. The lender assesses the creditworthiness of the borrower depending on their credit score. 
  • Some loans require a minimum turnover requirement. In such cases, the business should meet the minimum turnover requirement set by the lender.

Documents Required

  • Identity proof (Aadhar card, PAN card, or voter ID)
  • Address proof (utility bills orAadharr card)
  • Applicant passport-size photo.
  • Business registration certificate
  • Proof of category like SC/ST/OBC/Minority, if applicable
  • Last six month’s bank statements.
  • Project report/ Business plan
  • Income tax returns of the past 1-3 years

How can we help you?

In the above list, we saw that a Business plan/project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. Also, well-crafted and convincing project report increases the chances of loan approval. 

With Finline you can craft a compelling project report in less than 10 minutes, that too in your language. All public and private sector banks working in India accept our reports. Click to create your project report.