Are you a small business owner in India? If so, you may be looking for ways to get funding for your business. Luckily, many government loan schemes help you get the money you need.
This blog post will discuss 10 of India’s best government loan schemes for small businesses. We will also provide information on how to apply for these loans. And what are the requirements which need to be fulfilled to apply for the loan? So, if you are interested in getting funding for your small business, keep reading!
Table of Contents
What are Small Businesses in India?
Small Businesses are separated into three categories by the Government of India, And all together are termed MSMEs:
- Micro Enterprises
- Small Enterprises
- Medium enterprises
The Government of India approved recent changes to the definition of micro, small and medium-sized enterprises on June 26, 2020. The new rules have come into effect from July 1, 2020. These were a part of the Atmanirbhar Bharat Abhiyaan relief package that came into effect last year. The change in the numbers affected how many companies were considered small or large. Still, it also meant that there would be more medium-sized businesses.
The Revised MSME Definition-
- An Enterprise is known as a Micro Enterprise if the investment in plant & machinery or equipment does not exceed Rs 1 Crore. Moreover, the turnover should not exceed Rs 5 Crore.
- An Enterprise will be termed a Small Enterprise. If the investment in plant & machinery or equipment does not exceed Rs 10 Crore and turnover does not exceed Rs 50 Crore.
- An Enterprise will be termed as Medium Enterprise. If the investment in plant & machinery or equipment does not exceed Rs, 50 Crore and turnover does not exceed Rs 250 Crore.
Why do Small Businesses need Funding?
MSMEs’ contribution to the country’s economy can’t be overlooked. MSMEs supply a necessary form of employment. Also, generate growth in both developed and developing countries alike with their innovative strategies.
It is essential now more than ever because we need these small businesses to achieve sustainability as individuals or communities.
Small business units located far away from significant cities need special attention. Resources can become limited over time due to population growth and deterioration of natural capital, e.g. water pollution.
So, there are many reasons why small businesses may need funding, including the following:
- To purchase equipment or inventory
- To hire employees
- To cover marketing or advertising costs.
- To make repairs or renovations to the business premises.
- To cover administrative or legal costs
- To finance the start-up of a new business
Top Government Loan Schemes for Small Businesses in India are:
The benefits of being in business are many, but there’s nothing like having the Government on your side. The following ten schemes provide essential funding for start-ups and small enterprises:
#1. The Pradhan Mantri MUDRA Yojana (PMMY)
Also known as the Micro Units Development and Refinance Agency Ltd. (MUDRA) is a government-run scheme that provides loans to small businesses in India. The loans offered through the PMMY vary in size and type. And can be used for various purposes, such as starting a new business or expanding an existing one.
MUDRA split the loan into three categories for better understanding and accessibility by the small businesses:
- Shishu: This loan is offered to small businesses that have been in operation for less than one year. The maximum amount available under the Shishu category is Rs 50,000.
- Kishore: This loan is offered to small businesses operating for between one and five years. The maximum amount available under the Kishore category is Rs 500,000.
- Tarun: This loan is offered to small businesses that have been in operation for more than five years. The maximum amount available under the Tarun category is Rs 10,00,000.
Requirements for Pradhan Mantri MUDRA Yojana (PMMY) along with other salient features:
- Age: The borrower should be a minimum of 18 years old and maximum of 65 years old.
- Applicants with a clean track record are preferred; they should not be defaulters of any earlier loans.
- This plan will cover all small vendors, shopkeepers, workshops, repair shops, roadside vendors, mini truck and taxi operators, and other small service providers.
- Loan Requirements, i.e., Working capital loan or Term loan
- There are no Processing fees for “Shishu Loans” and “Kishore Loans”; however, 0.50% of the loan amount is charged if opting for “Tarun Loans.”
- Interest rates can vary depending on the bank, and the type of loan opted for based on the MCLR. Some may have lower interest than others, but it’s usually in the range of 8-12%, and no security is required.
#2. MSME Business Loans in 59 Minutes
In a move to support small businesses, the Indian Government launched ‘MSME Business Loans in 59 Minutes’ via PSBs in November 2018. This scheme is an important step towards making it easier for Small & Medium Enterprises (SMEs) and Micro-Small enterprises (MSMEs) lenders.
The loans under these schemes extend up to Rs. 10 crores and take about 8-12 days to get the loan amount. Wherein approval for the loan is received within 59 minutes. This loan scheme is one of India’s most responsive Micro, Small & Medium Enterprises (MSME) business financing options!
Requirements for MSME Business Loans in 59 Minutes along with other salient features:
- Bank Account Statements of last six months
- Proof of Business and Ownership
- Income tax Verifications
- KYC Details
- The loan is allowed to existing business owners and new start-ups.
- The rate of interest depends upon the nature of the business. The interest rate on this loan begins @ 8.5%.
#3. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE) is government-run. This scheme provides loans to the MSME sector to get capital through loans without collateral security.
The new program will be beneficial for both existing and fresh companies. It offers them access to affordable funds at low-interest rates with minimal requirements on their part.
The Credit Guarantee Fund Trust is a government initiative established by the Ministry of MSMEs and Small Industries to carry out their CGTMSE scheme. Working capital loans and term funding up to 200 lakhs are available under this program, with a preference for qualifying women entrepreneurs who can’t get enough credit elsewhere! This operation works nationwide through all banks in India.
Requirements for CGTMSE along with other salient features:
- Businesses in the field of retail trade, educational institutes, Training institutes, manufacturing.
- This scheme is open for all private and public sector businesses.
#4. Udyogini Scheme
This government loan scheme is meant to help women start their businesses in India, which will promote entrepreneurship among female citizens. The funding for starting this business comes from Women Development Corporation.
The Indian Government has set this up as part of its Udyogini program – it’s an amazing opportunity that only exists because we need more diversity on our boards!
Requirements and other salient features of the Udyogini Scheme:
- Women age should be in between 18years to 55years.
- Total annual family income should not exceed Rs. 15 lakhs, No limit for widowed or physically disabled.
- The maximum loan amount under this scheme is 15 lakhs.
- This loan scheme is a security-free loan.
- No Processing fee is charged in this scheme.
#5. Credit Link Capital Subsidy Scheme (CLCSS) for Technological Progress (CLCSSTP)
The Government has introduced a scheme to help small business owners upgrade their processes by financing technological advancements. This scheme can be related to numerous organizational processes, such as manufacturing or marketing; for example – there are many ways that technology could improve your company!
The Ministry of Small-Scale Industries runs the CLCSS scheme. It is mechanized to reduce production costs for small and medium-sized enterprises to remain price competitive in local and international markets.
The CLCSS offers an up-front capital subsidy of 15% for eligible businesses. However, there’s a cap on how much can be availed as the maximum amount that is offered under this scheme – set at Rs 1 Crore. Sole proprietorships and partnerships firms are included. Private co-operative companies also can participate.
#6. National Small Industries Corporation Loans
The NSIC is a Government enterprise under the MSMEs and ISO certified. One of its primary functions is to aid in growth for small businesses by providing services including finance, technology, market, etc.
Primarily NSIC has come up with two schemes to encourage the growth of Micro, Small and Medium Enterprises:
- Marketing Support Scheme: There are many ways to support the development of MSMEs. And one of them that can make a difference in promoting schemes like consortia and tender marketing. This scheme helps these businesses grow in today’s competitive market.
- Credit Support Scheme: Provides financial aid to procure raw materials.
NSIC is a great scheme that offers small-scale industries access to tenders without paying any costs and allows MSMEs to avail the scheme without paying the security deposit.
#7. Stand up India Scheme
The Prime Minister launched the stand-up India Scheme in April 2016 to promote entrepreneurship among women and SC/ST communities.
The Stand Up India Scheme is administered by the Small Industries Development Bank of India (SIDBI).
SIDBI can grant a loan from Rs 10 Lakhs to Rs 1 Crore under this scheme.
Requirements and other salient features of Stand up India Scheme:
- Businesses in the field of trading, manufacturing, and other service-related sectors
- Business should be an individual undertaking; if not, then 51% shares should be held by a woman of anyone who is an SC/ST
#8. (SMILE) SIDBI Make In India Soft Loan Fund For MSMEs
The SMILE scheme is a Principal program from the Small Industries Development Bank of India (SIDBI). It aims to provide loans to small and medium-sized enterprises with flexible or soft terms to meet their debt-equity ratio.
Why not take advantage of this opportunity? Under this scheme, small and medium-sized enterprises can apply for loans between Rs. 10 lakhs to 25 lacs with SIDBI as the lender requiring 15% minimum investor contribution plus personal guarantees from each promoter involved in running it!
Requirements and other salient features of SMILE:
- MSME’s Operational from the last 3years with an acceptable financial position, However SIDBI can provide weightage to new units.
- 10years is the maximum repayment period; Borrowers can opt for a 36-month moratorium.
- Borrowers’ financial position and loan amount shall affect the interest rate.
#9. Growth Capital and Equity Assistance Scheme
SIDBI launched the Growth Capital and Equity Assistance Scheme to provide debt facilities to MSMEs. The loan amount depends on the borrower’s financial stability, but it is usually above Rs 25 Lakhs.
Requirements and other salient features of Growth Capital and Equity Assistance Scheme:
- Small business units that have continuously earned profit from the last three years are financially stable and have good banking records for the last two years.
- The repayment tenure is seven years.
- The interest rate is as per SIDBI’s Internal rating.
- Moratorium options are also provided as per the need.
#10. Assistance to MSMEs for Recovery and Organic Growth during COVID-19 (AROG)
In the wake of COVID-19 and its impact on the economy, SIDBI has launched a scheme called Assistance to MSMEs for Recovery and Organic Growth during COVID-19 (AROG).
This scheme is specifically designed to help MSMEs manufacture medical products or provide medical services to fight COVID-19.
Business units can get loans up to Rs 200 Lakhs with very low security.
Requirements and other salient features of AROG Scheme:
- Current customers of SIDBI are eligible who are in profit as per their last audited balance sheet.
- Suppose the business unit is not an existing SIDBI customer but has shown profits from the last two years and has good financial records. In that case, they can also take advantage of the scheme.
- Interest rate floats in between 4.5% to 5% p.a
- Term loan repayment duration is five years.
- The Working capital loan repayment duration is 2.5 Years
- Moratorium Options are available as per the need
So, these were some of the top 10 government loan schemes for small businesses in India. Each of these schemes has different eligibility criteria and features, so you must research and find out which scheme works best for your business.
As these are government schemes, it is obvious that revisions and changes are being done as per the new bills passed in the parliament house; therefore, it’s strictly advised to have a proper investigation before moving forward. However, with so many options available, there’s no reason not to get started on expanding your business today! So, which loan scheme made you excited?