Government Loan Schemes for Businesses & MSMEs – 2023

Government business loan schemes were introduced primarily to offer funds and credit facilities to individuals, startups, business owners, self-employed professionals and MSMEs engaged only in the trading, manufacturing, and services sectors. There are number of loan schemes initiated by the Govt. of India with the help of Banks/NBFCs that can be chosen, as per the nature of the business and requirements. Further discussed are the types, features, and eligibility criteria of Business/MSME loans offered by financial institutions under the Govt. loan schemes.

Top 6 Government Loan Schemes for Startups, Businesses & MSMEs – January 2023

There several popular business startup loan schemes that the Government offers to budding entrepreneurs, as well as existing enterprises. The features and benefits of the top 6 Government business loan schemes to start a new business or for business expansion purposes are listed below:

1. Mudra Loan under PMMY

The Government has initiated Mudra scheme under Pradhan Mantri Mudra Yojana (PMMY) to offer finance to non-corporate, non-farm small/micro-enterprises. Mudra loans can be availed from Private and Public Sector Banks, NBFCs, and other financial institutions. Interested applicants can approach any of the above lending institutions or apply online through the official website of MUDRA. MUDRA loans are majorly used by business owners, small-scale businesses, startups, self-employed professionals and MSMEs.

Features:

• Collateral-free loans
• Competitive Interest Rates from banks/NBFCs
• Loan Amount up to Rs. 10 lakh
• Nil Processing Fee
• Zero prepayment charges
• Repayment Tenure from 12 months to 5 years
• Concessional Interest Rates for Women Entrepreneurs

Eligibility:

• The minimum age of the applicant should be 18 years and the maximum 65 years
• Applicants with no past loan defaults with good repayment history

The Non-Corporate Small Business (NCSB) segment comprising individuals, MSMEs, and sole proprietorships/enterprise firms in rural and urban areas can apply for the loan. Here are some examples of NCSBs:

• Small manufacturing units
• Service sector units
• Shopkeepers
• Fruits/vegetables vendors
• Truck operators
• Food-service units
• Repair shops
• Machine operators
• Small industries
• Artisans
• Food processors and many other entities

Individuals, business owners, and MSMEs engaged in the manufacturing, trading, and services sectors are eligible to avail MUDRA loans. Loans under Govt. schemes for women entrepreneurs can also be availed under Mudra Yojana. Below stated are the types and loan amounts offered under 3 loan schemes under the Mudra loan:

Types of 3 Mudra loan schemes along with offered loan amount:

• Shishu: Loan Scheme: Up to Rs. 50,000
• Kishor: Loan Scheme: From Rs. 50,001 and up to Rs. 5,00,000
• Tarun: Loan Scheme: From Rs. 5,00,001 and up to Rs. 10,00,000

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2. Stand Up India

Governed by the Small Industries Development Bank of India (SIDBI), Stand up India was initiated to provide funding to people who come under SC/ST category and women entrepreneurs. This scheme provides bank loans between Rs. 10 lakh and Rs. 1 crore to at least one SC/ST borrower and one woman borrower per bank branch.

Eligibility:

Enterprises engaged in the trading, manufacturing, or services sectors are considered eligible to avail loans under this scheme. In the case of non-individual enterprises, at least 51% of the shareholding stake should be with an SC/ST or woman entrepreneur.

Interest Rate & Features:

• Rate of Interest: Bank’s (Base Rate (MCLR)) + 3% + Tenor Premium
• Composite loans can be availed between Rs. 10 lakh to Rs. 1 crore to cover 85% of the project, inclusive of the term loans and working capital loans
• The specification of the loan is expected to cover 85% of the project cost. However, it will not be applicable if the borrower’s contribution along with convergence support comes from any other schemes that exceed 15% of the project cost

3. PSB Loans in 59 Minutes

On Nov 5, 2018, the Prime Minister, unveiled a dedicated digital platform or web portal named psbloansin59minutes.com to enable loans of up to Rs. 5 crores within just 59 minutes of approval for startup businesses and MSMEs. This loan scheme was initiated by the Indian Government to provide financial assistance to Startups, Micro, Small, and Medium Enterprises (MSMEs) throughout India. Some of the salient features of this loan type are as follows:

• Rate of interest: 8.50% p.a. onwards
• Loan amount: From Rs. 1 Lakh and up to Rs. 5 crore
• Collateral-free Loans: Collateral or Security is not mandatory, as the online portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme
• Fast access to financial assistance: Usually such loan processes take about 7-10 working days to complete. However, the loan approval process takes just 59 minutes

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4. National Small Industries Corporation (NSIC) Subsidy

The Government aids small businesses 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 required: The SSIs (Small Scale Industries) are exempted from paying a security deposit for availing of 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 the land and building department

Not every scheme initiated by the Government offers subsidies on loans for businesses. 

Find below the list of banks offering credit facilities under the Bank Credit Facilitation Scheme from NSIC:

• AU Small Finance Bank
• Axis Bank
• Bank of Baroda
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Federal Bank
• HDFC Bank
• ICICI Bank
• IndusInd Bank Ltd.
• Karnataka Bank
• Kotak Mahindra Bank
• State Bank of India
• Tata Capital
• Union Bank of India
• Yes Bank

5. MSME Loan Schemes from SIDBI

Launched in 2015, SMILE is governed by the Small Industries Development Bank of India (SIDBI). The aim of this scheme is to provide soft loans, meet the required debt-equity ratio for the establishment of new MSMEs, and also to enable the growth of existing ones. Below mentioned are the MSME loan schemes offered under SIDBI:

• General Purpose Term Loan
• Secured Business Loans for MSMEs
• SIDBI and Google Partnership for Assistance to Micro Enterprises (SANGAM)
• SIDBI’S Term Loan to enhance the production of MSMEs (STEP) Scheme
• SIDBI Assistance to Export Oriented MSMEs under UBHARTE SITAARE PROGRAMME
• SIDBI Thematic Assistance for Purchase of Capital Assets in New Enterprises (STHAPAN)
• Assistance to Re-Energize Capital Investments by SMEs (ARISE)
• SIDBI Term-Loan assistance for Rooftop Solar Photovoltaic (PV) Plants (STAR)
• SIDBI – Loan for Purchase of Equipment for Enterprise’s Development Plus (SPEED PLUS)
• SIDBI – Loan for Purchase of Equipment for Enterprise’s Development (SPEED)
• Working Capital (Cash Credit)
• TOP Up Loan for Immediate Purposes (TULIP)

Click here to get full details about these schemes.

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6. Credit Guarantee Scheme (CGS)

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme was launched by the Government to strengthen and facilitate the credit delivery system in the MSME sector. Public, private, and foreign banks along with Regional Rural Banks (RRBs) and the SBI with its associate banks are included in the lending institutions under this scheme.

Eligibility:

New and existing MSMEs engaged in manufacturing or service activities, excluding retail trade, educational institutions, agriculture, Self-Help Groups (SHGs), and training institutions are eligible for this scheme.

Features:

• This MSME scheme for entrepreneurs includes term loans and/or working capital loan facility up to Rs. 2 crores, per borrowing unit
• The guarantee cover provided is up to 75% of the credit facility up to Rs. 1.5 crore
• 85% of credit facility for loans up to Rs. 5 Lakh is provided to micro-enterprises
• 80% of credit facility for MSMEs owned/operated by women and all loans to North Eastern Region, including Sikkim
• For MSME Retail trade, the guarantee cover is 50% of the amount in default subject to a maximum of Rs. 50 Lakh

5 Steps to Register with Banks under Govt. Loan Schemes

Step 1: Go to the nearest bank’s official website eligible to offer loans under Govt. loan schemes

Step 2: Register on the portal and login through the One-Time Password (OTP) authentication

Step 3: Agree to the ”Terms & 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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Factors that affect the Eligibility of an Applicant/Enterprise

The key factors that affect the eligibility criteria of an applicant or enterprise are as follows:

• Age of the applicant
• Applicant’s repayment history and financial stability
• Nature and type of business
• Business Vintage
• Applicant’s credit score or Company’s credit rating
• Desired Loan amount and repayment tenure
• Annual business turnover, ITR, P&L statement
• Capital Invested and goods/raw materials/equipment/machinery to be used
• Debts, existing loans, or any past defaults

Government loans are offered to individuals, startups, MSMEs, retailers, manufacturers, traders, sole proprietorships, partnership firms, business owners, public and private limited companies, large enterprises, etc. The minimum age criterion to apply for a government business loan is 18 years and maximum of up to 65 years For the existing businesses the minimum business existence to apply for a loan is at least 1 year.

Documents Required

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:

• Duly filled application form along with passport-sized photographs
• KYC documents: Applicant’s Identity, Age, and Address Proofs: Passport, Voter ID card, Aadhar Card, Driving License, PAN card, Utility Bills (Water & Electricity Bills)
• Bank statements for the last 6 months
• Business Establishment Certificate
• Business Address and Vintage Proofs
• Business PAN card
• Proof of belonging to SC/ST/OBC category, if applicable
• Any other document required by the lender

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FAQs

Q. What is the minimum loan amount that can be availed under government loan schemes?

Ans.  There is no minimum limit to borrow from Banks/NBFCs under Govt. loan schemes. The minimum loan amount can be availed by Banks under Mudra Yojana under PMMY.

Q: How many government loan schemes are for MSMEs or for startup businesses?

Ans: There are over ten government business loan schemes present in this movement. Some of them are MUDRA Scheme, PSB loans 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 avail Government bank loans for small businesses 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 loan under PMMY to start a business?

Ans: To start a business you can apply for a Mudra loan scheme if the required loan amount is up to Rs. 10 lakh. Any government scheme offering business loans for startups will offer competitive interest rates 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. How can I get a government loan for a business in India?

Ans. To apply for loans under government schemes for small-scale businesses, you can opt for schemes, such as Standup India, PMEGP, Mudra Yojana, PMRY, Startup India, psbloansin59minutes, CGTMSE, CLCSS, etc.

Q. How much loan can I get for a small business under Mudra Yojana?

Ans. The maximum loan amount that can be availed for small businesses is up to Rs. 10 lakh under the Government loan scheme named MUDRA Yojana at lower interest rates. Higher loan amounts can be availed by applying with private and public sector banks or even with NBFCs.

Q. How to get a Startup loan for beginners who are not supported by Banks or financial institutions?

Ans. The startups who are denied business loans from banks can opt for loans from Small Finance Banks (SFBs), Micro Finance Institutions (MFIs), and Non-banking Financial Companies (NBFCs). Startups can also check for schemes initiated by the Government of India including the Mudra Scheme under PMMY, Startup India, Stand up India, and PSB Loans in 59 minutes.

Also Read: What is Business Loan Subsidy