Government business loans were introduced primarily to provide funding to Micro, Small and Medium Enterprises (MSMEs) and other important entities. There are many varieties of these schemes and the modern entrepreneurs can decide which one suits them the best through various online portals. Let’s further discuss the types, features and eligibility criteria of business loans offers by Indian government.
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Government Loan Schemes for Startup Business
There are more than 10 popular business startup loan schemes that government provides to the budding entrepreneurs. The features and benefits of top 3 government loans to start business are given below:
1. MUDRA Loan
The government has set up this scheme to provide finance to non-corporate, non-farm small/micro enterprises. Mudra loans can be availed from private and public sector banks, commercial banks, regional rural banks (RRBs), small finance banks and corporate banks. Interested applicants can approach any of the above lending institutions or apply online through the official website of MUDRA.
- Categorised under 3 loan schemes: Shishu, Kishor and Tarun
- No Collateral or Security Required
- Processing Charges: Nil
- No Minimum loan amount criteria
- Maximum loan amount up to Rs. 10 lakh
- Repayment Tenure up to 5 years
- Availed by enterprises engaged in Manufacturing, Trading and Services Sectors, only
- All Non-farm enterprises, i.e. small or micro firms engaged in the income generating activities can avail MUDRA loan
- Availed loan amount can be used for Term Loans and Overdraft facilities
2. PSB Loans in 59 Minutes
On Nov 5, 2018, our Prime Minister, unveiled a dedicated digital platform or web portal named as psbloansin59minutes to enable loans of up to Rs. 5 crore in just 59 minutes for startup business and MSMEs. The government launched this business loan scheme to provide financial assistance to the Micro, Small and Medium Enterprises (MSMEs) throughout India. Some of the great features about this facility are:
- Fast access to financial assistance: Usually such loan processes take about 7-10 working days to complete. However, the loan approval process takes in just 59 minutes
- Loan amount: The loan amount offered under this loan will be between Rs. 1 Lakh and maximum is up to Rs. 5 crore
- Rate of interest: The rate of interest offered under this scheme is 8.50% onwards
- Quick disbursal: After the loan gets approved in an hour, you can expect the money to reach in your bank account in 7-8 working days
Collateral-free: To avail the loan, collateral is not mandatory as the online portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme
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3. National Small Industries Corporation (NSIC) Subsidy
The government aids the small business under National Small Industries Corporation Subsidy (NSICS) with a focus on two financial benefits: marketing assistance and raw material assistance. Its benefits are as follows:
Cost-free tenders: Under the marketing assistance program, the Small-Scale Industries (SSIs) shall have access to the tenders without any costs.
No security deposit requires: The SSIs (Small Scale Industries) are exempted from paying a security deposit for availing finances.
Land and building financing: For the SSI units with the project cost not exceeding Rs. 25 Lakh, the scheme provides a financial facility for land and building department.
Types of Government Loan Schemes
The government schemes are to aid the entrepreneurs in financing their businesses. These schemes are specific towards the need of the enterprise and all of them can be categorized under the following types of business loans:
1. Working Capital Loan
Working capital loan is the type of capital that businesses requires to conduct and manage their day-to-day activities and is classified into two categorised, such as secured and unsecured. These activities are “business expenses” like utility bills, debt management, inventory management, operating costs, salaries for the workers and others. To be clear, a working capital entails all types of operating costs and several loan schemes cater to this very need.
2. Corporate Term Loan
The Government loan scheme or schemes within a corporate term loan are many. Corporate term loans are basically availed for business expansion purposes. Therefore, it is considered to be one of the major loan categories that start-ups should consider. The money involved in these types of termed loans usually is large and is expected to be re-paid over a longer period. This type of term loan has a negotiable interest rate.
3. Term Loan
As the name suggests, Term loan is a monetary instrument that is required to be repaid within defined tenure by the lender. Term loans enable the businessmen to buy plant & machinery, raw material, property or fixed assets and for paying of salaried or hiring new staff, etc. It is basically a type of funding provided by banks and NBFCs to individual entrepreneurs, business owners, MSMEs or large enterprises to make them meet their business requirements or working capital needs.
Steps to Register with the Loan Schemes
Step 1: Go to the desired bank’s official online portal associated with the scheme
Step 2: Register on the portal and log in through the One-Time Password (OTP) authentication
Step 3: Agree to the terms and conditions of the Government loan scheme
Step 4: Enter your financial credentials and other information required
Step 5: Proceed further and continue with filling the forms and uploading the required documents
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Government Business Loans: Eligibility Criteria
The documents that the scheme bodies ask to provide them all the information they need to evaluate, if the applicant is deserving of the schemes. The factors of eligibility criteria involve the following:
- Age of the applicant
- Loan amount
- Type of Business
- Credit Score
- Annual Turnover
- Capital Invested
Government loans are offered to individuals, start-up enterprises, sole proprietorship, and partnership firms, business owners, SMEs, MSMEs, private limited companies, large enterprises, etc. The minimum age criterion to apply for a government business loan is 18 years. For the existing businesses the minimum business existence to apply for a loan is 2 years. Minimum credit score to be above 650 required by lenders to sanction loan.
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Documents Required to avail Government Loan Schemes
The documents required for these government schemes may vary from one scheme to another. However, to give you an idea of what documents might be required when applying for the schemes; we have listed a few common documents:
- Passport-sized photographs
- Business plan
- Identity, Age, Address and Income Proofs
- GST Identification number
- Details of income tax paid over the last 3 to 5 years
- Bank statements of last 6 months
- Business address proof
- ITR returns for last 2 years
- Details of the type of loan that you want
- List of company Directors or partners of the company/partnership firm
- E-KYC: All the documents that the applicant would use to apply for E-KYC are needed here, as well
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Frequently Asked Questions (FAQs)
Q. What is the minimum loan amount that can be availed under government loan schemes?
Ans. The minimum loan amount that can be availed is Rs. 10,000 per borrower.
Q: How many government loan schemes for small business or for startup business?
Ans: There are over ten government business loans schemes present at this movement. Some of them are MUDRA Scheme, MSME loan under 59 minutes, Credit Linked Capital Subsidy Scheme, National Small Industries Corporation Subsidies, Stand Up India Scheme, Coir Udyami Yojana, Credit Guarantee Fund Scheme, etc.
Q. How can I get a government small business loan to start a new business in India?
Ans: You can get government small business loans by visiting the official website of the government initiated schemes and applying it online or with the respective bank that offers these schemes.
Q. How do I get a government loans to start business?
Ans: To start a business you can apply for Mudra loan scheme, if the required loan amount is up to Rs. 10 lakh. Any government scheme offering business loan for startups will offer competitive interest rate with flexible repayment options. If in case the loan amount required is more than Rs. 10 lakh then you can directly approach the desired bank or NBFC to get a business loan. Interest rates offered by NBFCs are comparatively higher than public or private limited banks.
Q. What is MUDRA?
Ans: MUDRA is an acronym for Micro Units Development and Refinance Agency. The Indian government established this organisation to enable the non-corporate, non-farm small/micro enterprises with financial assistance. Mudra loan is categorised under 3 loan categories named as Shishu, Kishor and Tarun. Loan amount sanctioned under Shishu category is maximum Rs. 50,000 and goes up to Rs. 5 lakh for Kishor loan scheme. For Tarun loan scheme the maximum loan offered is up to Rs. 10 lakh.
Q: What is an MSME?
Ans: Ministry of Micro, Small & Medium Enterprises (MSME) are basically small scale businesses which are classified in terms of their investment and turnover. MSME is an enterprise wherein the minimum investment in plant and machinery is Rs. 1 crore and goes maximum up to Rs. 50 crore.
Q: How to contact the personnel behind the schemes?
Ans: The person behind the schemes can be contacted through their official websites and browsing through their ‘Contact Us’ page.
Also Read: What is Business Loan Subsidy?