5 States in India with High Demand for Working Capital Loans

The beauty of every state in India lies in its unique blend of culture, food and landscapes. This is why the demands of every state are also different, which offers unique opportunities to business owners. The key MSME loan trends by state unfolding in the wake of this is the increasing use of working capital loans, as it supports meeting the regional variation in loan and cash flow demand.

The working capital loan demand in India also varies from state to state because of factors like industrial development, financial awareness, and state-level economic incentives. For instance, Maharashtra and Tamil Nadu are top states due to their manufacturing and trade hubs.

Having access to funds on time, nonetheless, is important for businesses to manage cash flow and business operations. This blog highlights the top 5 Indian states that have seen the highest demand for working capital loans in 2025 based on recent data and trends.

Why Working Capital Loan Demand in India Varies by State

The demand for working capital loans isn’t uniform across India because the regional demand is itself not uniform. It’s shaped by each state’s industrial landscape, digital access, and policy environment. The demand was high in states like Maharashtra, with a bigger and more industry presence. This is why regional MSME loan demand is higher in industrial states than in others.

Working capital demand rose by 6.4% in 2025 because growing raw material prices were the main driver of it. Here is why demand for working capital varies from state to state:

Density of MSMEs and Trading Hubs

• States with a higher concentration of MSMEs and established trading centres naturally generate more loan demand. For instance, Maharashtra, Gujarat, and Tamil Nadu are home to some of India’s largest industrial clusters. This is why demand is high in these states.
• As per the MSME Ministry’s data, Maharashtra and Tamil Nadu account for over 23% of registered MSMEs nationally.

Manufacturing vs Service-Led Economies

• Manufacturing-intensive states often require substantial working capital to manage the procurement of raw materials and production cycles. With the growing raw materials pricing, the demand for working capital loans is high in these manufacturing-intensive states.
• In contrast, service-driven states like Karnataka may show moderate loan demand due to lower operational costs.

Access to Digital Lending and Fintech Adoption

• States with better fintech penetration and higher digital literacy experience faster loan processing and increased demand.
• According to a Razorpay report, digital loan disbursals grew over 34% in Tier-2 and Tier-3 cities during 2023.

State-level Policies and Infrastructure Support

• States and regions with pro-MSME policies, better ease-of-doing-business scores, and streamlined regulatory processes encourage businesses to apply for business loans.
• For example, Gujarat’s “Plug and Play” industrial zones and single-window clearances support quicker onboarding of MSME loans.

Top 5 States in India with Highest Working Capital Loan Demand 

Working capital loans offer unique benefits that help you maintain cash flow and meet short-term business demands. Whether you have to buy bulk inventory or pay bills, it offers you funds for all day-to-day business operations. Unlike other types of business loans, working capital loans offer quick access to funds and flexibility in how you use them.

The demand for working capital loans is likely to be lower in states where business owners are less financially literate than those from metro cities and are less aware of the benefits. Here are the top 5 states in India with the highest working capital demand: 

1. Maharashtra

The state that consistently ranks among the top states in India for working capital loans in Maharashtra. As a major industrial and financial powerhouse, its economic vibrancy makes it a hub for MSME activity. The state is home to over 47.8 lakh MSMEs, which contribute significantly to employment and the GDP. Maharashtra accounts for over 10% of the country’s total registered MSMEs.

Top Factors Driving Demand for Working Capital Loans in Maharashtra

• Thriving Industrial Hubs: Mumbai, Pune, Thane, and Nagpur remain the top cities driving loan demand. They are the local hub for manufacturing, logistics, and retail operations. The manufacturing sector alone contributes to 31% of the state’s MSME activity.
• High MSME Density: A diverse range of small businesses operate in textiles, electronics, automotive, and food processing. This high density is the prime reason for the higher demand for working capital loans.
• Strong Digital Penetration: Maharashtra boasts one of the highest adoption rates of digital lending due to its improved internet access, effective fintech outreach, convenience and speed. It is also popular in Maharashtra due to faster loan approvals and disbursements.
• Fintech and NBFC Growth: Fintechs and NBFCs, such as Lendingkart, Razorpay, and FlexiLoans, have a strong presence, particularly in Tier 2 and 3 cities. Business owners have access to more lenders and, hence, the chance to get low-interest business loans.
• Supportive Infrastructure: Maharashtra state offers businesses better infrastructure, good transportation and financial infrastructure. It not only facilitates easier access to credit but also a growth system.

Maharashtra is among the top states in MSME credit originations, reflecting a significant demand for working capital loans. As a business owner, you will find more flexible and fast funding options here. This makes Maharashtra an ideal state to explore working capital loans.

2. Tamil Nadu

Tamil Nadu remains one of India’s leading states in terms of MSME loan demand, with significant industrial activity in Coimbatore, Chennai, and Tiruppur. There are numerous small businesses in these cities, including those in textiles, engineering, and food processing. Working capital loans are essential to the management of operations and order fulfilment of Tiruppur’s garment exporters, Chennai’s auto parts manufacturers, and Coimbatore’s textile businesses.

Key Highlights of MSME Loan Demand Tamil Nadu

• MSME Density & Economic Activity: Tamil Nadu ranks among the top three states with the highest number of registered MSMEs, hosting over 26 lakh units. These businesses make significant contributions to the state’s employment and exports.
• Top Sectors Driving Loan Demand: The textile hubs of Tirupur and Coimbatore, along with Chennai’s thriving engineering and auto components industry, are central to loan uptake. The food processing sector in districts like Thanjavur and Erode also contributes to the demand.
• Key Cities or Regions with Loan Spikes: Coimbatore, Chennai, and Tiruppur are the key cities witnessing the highest demand for working capital loans.
• Estimated Demand Volume: Tamil Nadu accounted for 11% of India’s total MSME credit disbursements, placing it among the top five loan-demanding states.
• Lending Trends: The state has witnessed an increase in fintech and non-banking financial company (NBFC) activity. Alternative lenders are gaining traction due to faster loan processing and wider digital adoption among MSMEs.
• Government Support: The Tamil Nadu government offers multiple schemes under the Single Window Portal for MSMEs. This provides access to subsidies, collateral-free loans, and quicker approvals, which boosts borrower confidence.

With its strong manufacturing clusters and a proactive support system, Tamil Nadu remains a critical market for working capital loans in India.

3. Gujarat

With its deep-rooted entrepreneurial spirit and strong industrial backbone, Gujarat MSMEs have consistently experienced high demand for business loans. Gujarat’s strong industrial base, particularly in cities like Ahmedabad, Surat, Rajkot, and Vadodara, makes it one of the most popular states in India for MSME loans.

Key Highlights Business Loan Demand Gujarat

• MSME Density & Economic Activity: Gujarat has a substantial number of registered MSMEs, reflecting its robust industrial base. There are over 11.26 lakh registered MSMEs in Gujrat, which is around 7.5% of all MSMEs in India.
• Top Sectors Driving Loan Demand: Key industries such as gems and jewellery in Surat, textiles in Ahmedabad, and chemicals in Vadodara and Bharuch are primary drivers of MSME credit uptake. These are the key industries with high demand for working capital loans.
• Key Cities with Loan Spikes: Surat, Ahmedabad, and Rajkot have shown higher-than-average loan enquiries from small businesses and traders. These enquiries are driven by consistent export activity and seasonal liquidity needs.
• Estimated Demand Volume: According to TransUnion CIBIL’s MSME Pulse, Gujarat accounted for approximately 10.6% of India’s MSME credit portfolio, signalling strong and stable loan demand.
• Lending Trends: The state has witnessed an increase in fintech and NBFC activity, especially in tier-2 cities. Alternative lenders are gaining traction due to their faster loan processing and wider digital adoption among micro and small enterprises (MSMEs).

4. Uttar Pradesh

With more than 9.6 lakh registered MSMEs, Uttar Pradesh is becoming a major centre for MSME credit demand, especially in working capital financing. These businesses operate across various industries, including textiles, leather, handicrafts, and agro-processing. The state has witnessed a steady increase in business loan demand in Uttar Pradesh.

Key Highlights MSME Working Capital Loan UP

• MSME Density & Economic Activity: Uttar Pradesh ranks among the top three states in terms of registered MSMEs, with over 96 lakh enterprises contributing significantly to local employment and economic growth.
• Top Sectors Driving Loan Demand: Textile, handicrafts, leather goods, agro-processing, and engineering clusters in UP are showing heightened working capital needs, especially during peak production cycles.
• Key Cities with Loan Spikes: Cities like Kanpur, Lucknow, Varanasi, and Moradabad are major hotspots for MSME loan trends by state. Varanasi and Moradabad also see high seasonal demand due to export-linked industries.
• Lending Trends: UP is witnessing an increase in NBFC and fintech lending, particularly in semi-urban and rural pockets. Fintech platforms like FlexiLoans, Lendingkart and Indifi are enabling quick disbursals to first-time borrowers.
• Digital & Policy Push: The state government’s ODOP (One District One Product) scheme and digital MSME initiatives have streamlined access to loans, particularly for rural and micro units.

5. Karnataka

Thanks to a thriving mix of software companies in Bangalore, agribusinesses in Mysore, and trade activities in Hubli, Karnataka is becoming a hotspot for working capital loans. The state is seeing an increase in startup loan demand Bangalore for quick-access working cash due to its high level of digital penetration.

The business and startup loan demand Bangalore is highest among trade enterprises, IT service providers, and agri-processing facilities.

Key Highlights Working Capital Loans Karnataka

• MSME Density & Economic Activity: Karnataka has a strong base of over 10 lakh registered MSMEs. Cities like Bangalore, Mysore, and Belgaum are at the forefront of this growth. As a local business owner, you’re operating in a competitive yet opportunity-rich environment.
• Startup Ecosystem: With over 10,000 DPIIT-recognised startups, Karnataka is one of the most innovation-driven economies in India. If you’re a startup founder, the state’s ecosystem provides excellent access to angel investors, incubators, and venture capital.
• Top Sectors Driving Loan Demand: Working capital loans in Karnataka are primarily utilised by businesses in the IT services, agri-processing, textiles, and e-commerce sectors. These sectors consistently face seasonal or cyclical liquidity needs.
• Key Cities with Loan Spikes: Business and startup loan demand Bangalore has high volumes, thanks to its global tech prominence. Mysore and Hubli follow closely, with high activity in agriculture-linked services and inter-state trade.
• Lending Trends: Fintech adoption is on the rise in Karnataka, especially among MSMEs in Tier 1 and Tier 2 cities. Fintech platforms in the state offer faster approvals and flexible loan terms. If you’re seeking digital-first financing, Karnataka’s fintech ecosystem is the best.

Honourable Mentions – Emerging States to Watch 

While the top five states lead in loan volume, several emerging regions are showing promising growth in MSME loan demand across India. If you’re operating in one of these states, you’re likely witnessing greater credit accessibility and digital lender activity.

1. Telangana

Hyderabad is rapidly becoming a thriving hub for MSME tech startups. With over 2.4 lakh Udyam-registered MSMEs (as of October 2023), the state’s startup policies and industrial hubs are driving demand for unsecured business loans. Tech manufacturing and software services are two high-growth sectors in this region.

2. Rajasthan

MSME clusters in Jaipur, Jodhpur, and Bikaner, which focus on handicrafts, textiles, and agriculture, are experiencing increasing financing needs. The state has seen over 20% YoY growth in digital lending to rural MSMEs. If you’re in agri-processing or export crafts, you’re likely part of this surge.

3. West Bengal

Kolkata and Siliguri are key regional trade hubs. With 6.5+ lakh MSMEs registered in the state, there’s rising demand for working capital loans in logistics, food processing, and small retail businesses. Fintechs are accelerating inclusion in Tier 2 and 33 towns here.

What This Means for Lenders & Entrepreneurs

For lenders, this working capital loan demand in India opens the door to more targeted loan marketing by region in India. You can optimise acquisition by aligning campaigns with state-wise MSME density and sectoral demand.

Cities like Mumbai, Coimbatore, and Bangalore offer a high return on investment (ROI) on digital onboarding due to strong fintech and non-banking financial company (NBFC) activity. Segmenting your outreach based on regional business cycles helps build trust and boosts conversions.

If you’re an entrepreneur, this trend works in your favour, as well. The states with higher MSME penetration often offer better access to funding. From working capital loans to unsecured credit lines, the options increase when your state attracts active lenders.

Fintech platforms, in particular, are using such insights to build customised, state-specific MSME loan products. These align with seasonal cash flow patterns, such as those found in textile hubs in Gujarat or agri-processing in Karnataka.

According to the SIDBI-TransUnion CIBIL MSME Pulse Report, new-to-credit MSME borrowers grew by 14% YoY, signalling a surge in regional financing appetite. If you’re looking to grow or sustain your venture, staying informed on these state-wise lending shifts could be your edge.

Conclusion

India experienced an 11% year-over-year growth in MSME loan demand in 2025. It’s not just MSME businesses that are growing but also their working capital demands. This demand varies by state based on industrial activity, MSME density, and regional economic strengths. As a borrower, you also benefit from demand as it gives you fast access to funds to manage cash flow and foster expansion.

If you’re looking to improve your cash flow, FlexiLoans offers tailored working capital financing that meets your specific working capital needs. The loan is also collateral-free and has a low interest rate. Besides all these, the flexible repayment options ensure that the repayment doesn’t burden your cash flow.

FAQs about Working Capital Loan Demand India

Q. 1 Which state in India has the highest MSME loan demand?

Ans: Maharashtra leads in MSME loan demand, driven by its robust industrial base, high MSME density, and robust financial infrastructure in cities such as Mumbai and Pune.

Q. 2 Where are most working capital loans disbursed in India?

Working capital loans are primarily dispersed in states with high industrial activity, such as Maharashtra, Tamil Nadu, Gujarat, and Uttar Pradesh, where MSMEs are concentrated.

Q. 3 Why is Maharashtra leading in business loan demand?

Ans: Maharashtra’s strong industrial sectors, including manufacturing, retail, and logistics, along with high fintech adoption, contribute to its significant demand for business loans.

Q. 4 Are there region-wise government loan schemes for MSMEs?

Ans: Yes, India’s government offers region-specific loan schemes to support MSMEs, focusing on sectors such as handicrafts, agriculture, and manufacturing in various states.

Q. 5 What are the top cities in India for MSME financing?

Ans: Major cities like Mumbai, Pune, Ahmedabad, Coimbatore, and Bangalore are known for high MSME financing due to their strong economic activity and infrastructure.