Government Loan Schemes for Small Businesses

Government business loans were introduced primarily to provide funding to individuals, business owners, SMEs and MSMEs engaged only in Trading, Manufacturing and Services sectors. 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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Top 6 Government Loan Schemes for StartUps & New MSMEs

There are more than 10 popular business startup loan schemes that government provides to the budding entrepreneurs. The features and benefits of the top 6 government business loans to start 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 business and as start up business loan offered by Indian government.

Eligibility: Non Corporate Small Business Segment (NCSB) comprising of proprietorship/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 others

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

Types of 3 Mudra loan schemes along with offered loan amount

• Shishu: Loans: Up to Rs. 50,000
• Kishor: Loans: From Rs. 50,000 and up to Rs. 5 lakh
• Tarun: Loans: From Rs. 5 lakh and up to Rs. 10 lakh

2. Stand-Up India

Governed by 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 in trading, manufacturing, or services sectors are considered eligible for this scheme. . In case of non-individual enterprises at least 51% of shareholding stake should be with an SC/ST or woman entrepreneur.

Interest Rate and Features:

• The rate of interest would be the lowest applicable rate – (Base Rate (MCLR)) + 3% + Tenor Premium
• It offers composite loans between Rs. 10 lakh to Rs. 1 crore to cover 75% of the project, inclusive of the term loan and working capital
• The specification of the loan being expected to cover 75% of the project cost. It won’t be applicable if the borrower’s contribution along with convergence support come from any other schemes exceeds 25% of the project cost

3. PSB/MSME 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 startup loans were launched to provide financial assistance to the Micro, Small and Medium Enterprises (MSMEs) throughout India. Some of the great features about this facility are:

• Rate of interest: The rate of interest offered under this scheme is 8.50% onwards per annum
• Loan amount: The loan amount offered under this loan will be between Rs. 1 Lakh and maximum is up to Rs. 5 crore
• 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
• 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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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 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.

Not every scheme initiated by the Government offers subsidy on loan for businesses.

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

Launched in 2015, SMILE is governed by 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 for existing ones. The interest rate offered under SMILE scheme is 8.36% onwards.

Eligibility: New enterprises on board along with the existing manufacturing and services sectors can apply for this scheme. Existing enterprises undertaking up-gradation or starting other projects for expanding their business will also be covered under this scheme. The maximum loan repayment tenure is 10 years with 36 months of moratorium period.

Loan Amount: The loan amount offered under SMILE scheme is minimum Rs. 25 lakh and onwards

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 into 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

Steps to Register with the Government 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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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.

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
• Self-drafted 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
• Any other document required by the lender or 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 for MSMEs 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 avail Government bank loan 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 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 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 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 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, Mudra Yojana, 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 business is up to Rs. 10 lakh under the Government loan scheme named as 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, Micro Finance Institutions and 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?