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Top 6 Government Loan Schemes for Small Businesses

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Best Government Loan Schemes for Small Business in India

1. Pradhan Mantri Mudra Yojana (PMMY)

The Pradhan Mantri Mudra Yojana was launched in 2015 to provide collateral-free business loans to micro-enterprises engaged in manufacturing, trading, services, and certain agricultural activities. Under the scheme, MUDRA loans are offered up to Rs. 20 lakh through designated banks/MFIs/NBFCs based on the following categorisation:

  • 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
  • Tarun Plus: Loans from Rs. 10 lakh and up to Rs. 20 lakh

Eligibility: Non-Corporate Small Business Segment (NCSB), comprising 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

All kinds of manufacturing, trading and service sector activities can get a MUDRA loan.

2. MSME Business Loans for Start-ups in 59 Minutes

MSME Business Loans for Start-ups in 59 minutes add another dimension to the MSME sector and are offered at a nominal interest rate from 6.8 % to 21% depending on the customer's credit and risk profile. Headed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the initiative aims to automate key loan-appraisal processes so that applicants receive an eligibility letter and loan approval within 59 minutes. The applicant can choose a bank of their own choice for easy access. Normally, the loan is expected to be sanctioned/disbursed in 7-8 working days, post the verification process.

  • Eligibility: The borrower has to be GST, IT compliant and must have at least 6 months of bank history. The mandatory parameters for determining the eligibility of a company are:
    • Income/Revenue
    • Repayment Capacity
    • Existing credit facilities
    • Any other factors, as set by lenders (banks or NBFCs)
    • Fiscal Incentives: Under this scheme, business loans for start-ups are provided with loan amounts ranging from Rs. 10 lakh to Rs. 5 crore. The rate of interest offered under this scheme starts from 6.8% onwards. The processing fee ranges from 0.1% to 6%.

    3. Credit Guarantee Scheme (CGS)

    The 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, form the network of 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.
    • Fiscal incentives: Here are some details of the scheme:
      • With effect from 01.04.2025, this scheme facilitates credit guarantees for credit support of up to Rs. 10 crore to MSEs, extended by the MLIs
      • The guarantee cover provided is up to 75% of the credit facility up to Rs. 1.5 crore
      • 85% of the 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

    4. 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). This scheme aims 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 the SMILE scheme starts from 9.15% onwards.

    • Eligibility: New enterprises on board, along with the existing manufacturing and services sectors, can apply for this scheme. Existing enterprises undertaking upgradation or starting other projects for expanding their business will also be covered under this scheme. The maximum loan repayment tenure is 10 years with a 36-month moratorium period.
    • Fiscal incentives:
      • New enterprises can avail a minimum loan of Rs. 25 lakh and existing enterprises can avail a minimum loan of Rs. 50 lakh
      • The scheme provides financing up to 75% of the project cost, capped at Rs 100 lakh, and covers two-thirds of the amount beyond this limit.

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    5. Bank Credit Facilitation Scheme

    Headed by National Small Industries Corporation (NSIC), the scheme aims to meet the credit requirements of MSME units. The NSIC has entered into a Memorandum of Understanding (MoU) with various nationalised and private sector banks for the purpose. Through syndication with these banks, the NSIC arranges for credit support (fund- or non-fund-based limits) from banks without any cost to MSMEs.

    • Eligibility: MSMEs registered in India
    • Features:
      • Facilitates credit access for MSMEs through a network of public and private sector banks.
      • Allows MSMEs to apply for a new banking relationship or shift their existing account to another bank under approved tie-up arrangements.
      • Assists MSMEs in preparing the required documentation, while NSIC officials coordinate and follow up with the bank after submission.
      • Expands credit reach to a larger number of MSMEs seeking financial assistance.
      • Provides free handholding support to MSMEs throughout the credit facilitation process.

    6. Prime Minister’s Employment Generation Programme(PMEGP)

    PMEGP is a central sector scheme administered by the Ministry of Micro, Small and Medium Enterprises (MoMSME). The scheme is implemented by Khadi and Village Industries Commission (KVIC), functioning as the nodal agency at the national level. At the state level, the scheme is implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centers (DICs), and Coir Board, known as the Implementing Agencies.

    Benefits of PMEGP

    • Bank-financed subsidy program for setting up new micro-enterprises in the non-farm sector.
    • Margin Money subsidy on Bank Loan ranges from 15% to 35% for projects up to Rs. 50 lakh in manufacturing and Rs. 20 lakh in the service sector.
    • For beneficiaries belonging to special categories such as SC / ST / Women / PH / Minorities / Ex-Servicemen / NER, the margin money subsidy is 35% in rural areas and 25% in urban areas.

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    Get up to 40 Lakh in 5 Simple Steps

    Step 1: Enter your mobile number in the application form

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    Step 3: Enter OTP to verify your mobile number

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    Step 5: Compare offers and apply for the best-suited loan

    Apply Now

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    FAQs

    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.

    The maximum loan amount that can be availed for small business is up to Rs. 20 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.

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