Top 6 Government Loan Schemes for Small Businesses

Due to the increasing demand for business loans in the Indian, the Government has launched several subsidy and loan schemes backing the entrepreneurs of the country to run small yet successful businesses. Let’s discuss about the top 6 Government Loan schemes for businesses engaged in small scale industries.

Best Government Loan Schemes for Small Business in India

1. Pradhan Mantri Mudra Yojana (PMMY)

Under Micro Units Development and Refinance Agency (MUDRA), PMMY provides loan options to meet the financial necessities of different sectors/business activities, as well as business/entrepreneur segments. Generally, loans up to Rs. 10 Lakh issued by banks to MSMEs are given without collateral.

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

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

Fiscal incentives: MUDRA offers incentives through these interventions:

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. 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 is offered at a nominal interest rate of 8.50% onwards. Headed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the initiative aims at automation of various processes to loan appraisal in such a way that one gets an eligibility letter along with the loan approval within 59 minutes. The applicant can choose bank of their own choice for easy access. Normally, the loan is expected be sanction/disbursed in 7-8 working days, post the verification process.

Eligibility: To be eligible for this particular loan, borrower has to be GST, IT compliant and must have at least 6 months bank history. The mandatory parameters for determining the eligibility of one company are:

Income/ Revenue
b. Repayment Capacity
c. Existing credit facilities
d. Any other factors, as set by lenders (banks or NBFCs)

Fiscal Incentives: Under this scheme, business loans for start-ups are provided with loan amount from minimum of Rs. 1 lakh and maximum up to Rs. 5 crore. The rate of interest offered under this scheme is 8.50% onwards.

3. 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.

Fiscal incentives: Here are some details of the scheme:

• 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

4. 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.

Fiscal incentives:

• The loan amount offered under SMILE scheme is minimum Rs. 25 lakh and onwards 

5. 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.

Fiscal incentives:

• 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
• The rate of interest would be the lowest applicable rate – (Base Rate (MCLR)) + 3% + Tenor Premium

6. 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

Fiscal incentives: NA

 

FAQs

Q. How can I get a government loan for a small 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?

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.