How to Get a Business Loan if You Run a Home-Based Business?

‘Garage se Terrace tak ka safar’

Reena runs a successful home-based pickle business. She sells on WhatsApp and Instagram, earning ₹75,000 per month. To fulfil rising bulk orders, she needed a ₹4 lakh loan for packaging and a new mixer unit. But three banks rejected her loan, saying, “No GST, no business address, no formal proof of income, no loan.”

Here are the further details about Reena and how it didn’t meet the bank criteria:
 

Thousands of small, home-based business owners face similar issues when applying for a loan. Are you one of them? Do not worry. This blog is going to be your one-stop solution, so buckle up and pull your socks up.

1. Understand Eligibility & Loan Types

What was the first thing a ride attendant did when you lined up for a ride in the amusement park? Height check, weight check, and check if you are strong enough to handle the ride. 

Read More – Why More Startups Are Choosing Business Overdrafts Over Term Loans

Similarly, banks have criteria to check if you are trustworthy enough. So, it is best to understand what lenders look for. 

Let’s discuss each criterion that will determine your business loan for a home-based business in the table given below:
 

There are multiple loan types that banks offer, just like different rides in the amusement park. Which one will you choose? Let me make it simple for you with the help of the table given below:
 

For example, Neha runs a bakery that she started during the lockdown. Her monthly revenue has grown steadily to ₹90,000, and she now wants a ₹5 lakh loan to buy an industrial oven and hire a delivery assistant. Here’s how her situation fits the eligibility criteria:
 

Based on her eligibility, Neha explored three loan options:
 

2. Prepare Documentation & Business Plan

Once you've assessed eligibility, the next step is getting your paperwork in order. Even if your business is run from home, banks and NBFCs expect proper documentation, especially for loans above ₹2–3 lakh. 

Do you know that over 60% of MSME loan rejections in India are due to incomplete or missing documentation? We don’t want you to be a part of this huge percentage, so refer to the table to have a quick summary of the documents needed. 
 

For example, Rajesh has been running a home decor business for 2 years. His products sell well online, but when he applied for a ₹4 lakh loan to scale up, his application was rejected. It was because he hadn’t filed ITRs or registered his business.

Let’s see on what parameters he got rejected, and what happened after proper documentation in the table given.

3. Explore Government-Backed & Collateral-Free Schemes

If you are unsure about your eligibility or lack formal collateral, government-backed schemes can be your best entry point. Since April 2015, the Pradhan Mantri MUDRA Yojana has sanctioned over ₹23 lakh crore across nearly 41 crore loans. Approximately 68% of those loans were granted to women entrepreneurs.

Let’s look at some of the most relevant schemes available for Indian home-based business owners.
 

For example, Sunita had been stitching blouses and school uniforms from her living room for three years. She earned around ₹18,000 per month. With festival season approaching, she wanted to invest in: 

• two industrial sewing machines (₹1.3 lakh total), 
• rent a small side workspace (₹5,000/month), and 
• hire part-time help (₹6,000/month).

She approached her SBI branch and applied for a ₹3.5 lakh MUDRA loan under the Kishor category. Here are the further details about her finances:
 

Conclusion

‘Dhandha chota-bada nahi hota hai!’ Every venture faces financial difficulties, and that phase calls for a big step. Getting a business loan for your home-based venture has become super easy. You just need the right documents, registration, and planning. Choose who will help your business grow better, banks or Modi sahab’s schemes?

Also Read - How to Get a Business Loan With a Low Turnover

Frequently Asked Questions

1. How to qualify for a home‑based business loan?

You need 1–3 years vintage, ₹10–40L turnover, audited ITRs/bank statements, Udyam/GST registration, and a CIBIL score ≥ 650. 

2. Which loan schemes suit home entrepreneurs?

Mudra (up to ₹10L, unsecured), CGTMSE (up to ₹5 Cr guarantee), PSB 59-min digital loans .

3. What interest rates apply to these loans?

Typically 9–12% p.a. for Mudra, 10–15% under CGTMSE, and starting ~8.5% for PSB digital business loans .

4. Can I get collateral‑free funding from home?

Yes, Mudra and CGTMSE offer unsecured/home‑based business loans up to ₹10L and ₹5 Cr guarantee without collateral. 

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?