Government Loan Schemes for Small Businesses

Government business loans were introduced primarily to provide funding to individuals, business owners and MSMEs engaged only in trading, manufacturing, and services sectors. There are various loan schemes started by the Govt. 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 offers by banks and NBFCs, as well as loan schemes initiated by the Indian government.

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Top 6 Government Loan Schemes for Startups & New MSMEs

There are more than 10 popular business startup loan schemes that the Indian Government provides to budding entrepreneurs. The features and benefits of the top 6 government business loans to start a new business are given below:

1. MUDRA Loan under PMMY

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. MUDRA loans are majorly used by small-scale businesses and startups.

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 maximum 65 years
• Applicants with no past loan defaults

Non-Corporate Small Business (NCSB) segment comprising of individuals, MSMEs, 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 / vegetable vendors
• Truck operators
• Food-service units
• Repair shops
• Machine operators
• Small industries
• Artisans
• Food processors and many other entities

Individuals, business owners, and enterprises 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 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

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 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 entrepreneurs.

Interest Rate and 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 75% of the project, inclusive of the term loans and working capital loans
• The specification of the loan being expected to cover 75% 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 25% of the project cost

3. PSB/MSME 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 the 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% onwards per annum
• 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
• Quick disbursal: After the loan gets approved in an hour, you can expect the disbursals in 7-8 working days

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4. 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 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.

5. SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)

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, to meet the required debt-equity ratio for the establishment of new MSMEs, and also to enable the growth of existing ones. The interest rate offered under SMILE Timely Working Capital Assistance during the COVID times scheme is 8.25% onwards.

Eligibility: All existing borrower accounts including under Credit Delivery Arrangement with combined outstanding credit facilities up to ₹25 crores as of 29th Feb 2020.

Loan Amount: Up to 20% of total outstanding loans with SIDBI up to Rs. 25 crores with cap exposure of Rs. 5 crores.

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 to 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), 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 crore, 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 

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

Step 2: Register on the portal and login 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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Factors that affect the Eligibility of an Applicant or 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
• 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. For the existing businesses the minimum business existence to apply for a loan is at least 1 year.

Documents Required for Loan Application

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 of 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 bank

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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 borrowed under government loan schemes starts from Rs. 30,000 per applicant.

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

Ans: There are over ten government business loans schemes present at 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 of 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. What is MUDRA Yojana?

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 Shishu, Kishor, and Tarun. The loan amount sanctioned under the Shishu category is maximum of Rs. 50,000 and goes up to Rs. 5 lakh for the Kishor loan scheme. For the 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) is basically small-scale businesses that 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 person behind the schemes?

Ans: The person behind the schemes can be contacted through their official websites and browsing through their ‘Contact Us’ page.

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 that include Mudra Scheme under PMMY, Startup India, Standup India, and PSB Loans in 59 minutes.

Also Read: What is Business Loan Subsidy?