Composite loan
Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
A composite loan is one bank loan that pays for two needs at the same time. The first is fixed assets such as land, a building or machinery. These are funded through a term loan, which is repaid in instalments over several years. The second is working capital, the day-to-day money a business needs for raw material, wages and stock. The borrower deals with one bank, one application and one set of papers instead of two. This helps first-time entrepreneurs, who often struggle to arrange even one loan. Under the Stand-Up India Scheme (launched 2016, renewed in 2026 up to 31.03.2031), a bank loan can be given either as a composite loan or as a term loan alone.
Example
A woman entrepreneur in Madurai plans a new food-processing unit. The project cost is Rs 50 lakh. Under Stand-Up India, the loan can cover up to 85% of project cost, so she can get one composite loan of up to Rs 42.5 lakh. Part of it buys the machines and part of it pays for the first stock of raw material and wages. She brings the remaining Rs 7.5 lakh herself.
Don't confuse with
- Term loan: it pays only for fixed assets and is repaid over a fixed period. A composite loan adds working capital to it.
- Working capital loan: it only meets short-term running expenses, such as stock and wages. It does not pay for machinery or buildings.