Two different problems, two different products
"We need funding" isn't specific enough to act on. A business that needs to smooth out cash flow between invoicing and collection has a different problem than a business that needs to buy a new machine, and the right credit product looks very different depending on which one you're solving for. Getting this wrong doesn't just cost you in interest; it can leave you with a repayment structure that doesn't match how money actually moves through your business.
Working capital: Cash Credit and Overdraft
Cash Credit (CC) and Overdraft (OD) facilities exist for day-to-day operations: paying suppliers while you wait on customer payments, covering payroll during a seasonal lull, or simply keeping the business liquid. You draw what you need, when you need it, up to a sanctioned limit, and interest applies only to what you've actually used. This is the right tool when your funding need is recurring and short-term by nature, not a one-off purchase.
Term loans: funding for a specific purpose
Term loans, by contrast, are built for a defined purpose with a defined repayment schedule: expansion, equipment purchase, or a specific project. You receive the full amount upfront and repay it in instalments over an agreed period. This structure only makes sense when the funding is tied to something that will generate value over that same period, not to plug a recurring cash flow gap.
MSME-backed schemes worth knowing
- Collateral-free lending linked to Udyam/MSME registration, useful for businesses without significant assets to pledge
- Priority sector lending norms, which can mean more favourable terms from banks required to meet lending targets
- Subsidised or capped interest rates under specific government schemes, depending on sector and business size
How lenders actually evaluate your application
- Repayment capacity based on actual cash flow, not just reported profit
- Existing credit history and how much of your current limits you're already utilising
- Clarity on the purpose and end-use of the funds being requested
- The collateral or guarantee structure you're able to offer, where applicable
Getting credit for a business isn't just about eligibility; it's about presenting your profile well.
The businesses that get funded quickly are rarely the ones with the strongest numbers alone. They're the ones who walk in with the right product already identified, a clear purpose, and a case that's easy for a lender to say yes to.