Top 5 Government Loan Schemes For Small Businesses in India
The Indian government ensures that small businesses have enough capital. Read on to know the top 5 government loan schemes for small businesses in India at IIFL Finance.
India is pacing swiftly towards being a developed country as the economy is growing tremendously. One of the most important contributors to the Indian economy’s growth is the small businesses, also called Micro, Small and Medium Enterprises. However, it becomes difficult to raise capital for companies that do not have a high capital amount and valuable assets to pledge as collateral.
The Indian government has designed numerous business loan schemes for small enterprises in India to ensure they can raise credit with attractive and affordable interest rates and flexible repayment terms.Government Loan Schemes
The Indian government invests heavily to ensure that small businesses in India have enough capital to cater to their business needs. They have created numerous departments responsible for offering ideal credit facilities to small businesses with flexible terms and conditions.If you run a small business and need external funds to ensure smooth operations, you can consider various government schemes to take a loan. Here are the top five government business loans schemes to avail of an ideal business loan.
|
Government Loan Scheme |
Eligibility |
Loan Amount |
|
Pradhan Mantri Mudra Yojana |
|
1. Tarun Loans (Rs 5 lakh-10 lakh) 2. Kishor Loans (Rs 50,000-5 lakh) 3. Shishu Loans (Up to Rs 50,000) |
|
MSME Business Loans In 59 Minutes |
|
Up to Rs 5 crore |
|
Credit Guarantee Scheme (CGS) |
|
One can take a maximum loan of Rs 2 crore, with the loan guarantee cover being 75% for credit up to Rs 5 crore and 85% for credit up to Rs 1 crore. |
|
National Small Industries Corporation Subsidy |
|
Up to Rs 25 lakh for land and building department |
|
Pradhan Mantri Employment Generation Program (PMEGP) |
|
Up to Rs 25 lakh in the admissible sector and Rs 10 lakh in the business sector. |
Features of MSME Loan Schemes
- Flexible Repayment Tenure from 1 year to 5 years
- Approval in a few days
- Money is directly credited to the MSME account online
- Quick disbursement eliminates delays in business processes
- No hidden charges
- Minimal additional charges including Processing Fee
- No need to pledge collateral
- Concessional 3% interest rate for women entrepreneurs
Loan Amount Limit: Up to ₹1 crore
Rate of Interest: 8%
Features of Credit Guarantee Fund Scheme
- Includes term loans and/or working capital loan facility up to ₹5 crores, per borrowing unit
- Guarantee cover offered is up to 75% of the credit facility, up to ₹1.5 crore
- For loans up to ₹5 Lakh, 85% of credit facility is offered to micro enterprises
- For MSMEs owned/operated by women and all loans to North Eastern Region, including Sikkim, 80% of credit facility is available
- For MSME Retail trade, the guarantee cover is 50% of the amount in default subject to a maximum of ₹50 Lakh
Loan Amount Limit: Up to ₹5 crores
Rate of Interest: Competitive
Features of Mudra Loan
- No collateral security is required for this loan
- Zero Processing Fee
- Zero prepayment charges
- Repayment Tenure ranges between 12 months and 5 years
- Concessional Interest Rates for Women Entrepreneurs
Loan Amount Limit: Up to ₹ 10 lakhs
Rate of Interest: Competitive
Features of Credit Linked Capital Subsidy Scheme
- Under this business loan scheme, one can receive up to 15% subsidy on their investment in specific machinery
- Available to enterprises who have invested in machinery by availing a term loan from the approved list of financial institutions.
- Industries that are transitioning from small to medium scale are also entitled to benefit from this subsidy scheme.
- According to the revised CLSS scheme, an extra 10% subsidy is extended to entrepreneurs who belong to the SC/ST category and hail from the selected districts of the North-East or other hilly terrains.
Subsidy Amount Limit: Up to ₹1 crore
Rate of Interest: Competitive
Features of SIDBI Loans
- Loans are customized as per the needs of the enterprise
- Multiple tie-ups with banks and international financial institutions can help secure concessional rates of interest
- Apart from loans, SIDBI also offers advice and assistance through their Trust called Fund Trust for Micro and Small Enterprises (CGTMSE).
- Sufficient capital can be acquired without diluting the ownership of the company
- It also provides growth capital in the form of equity via venture capital funds focussed on MSMEs
- No hidden charges
Loan Amount Limit: Up to ₹2.5 crores
Rate of Interest: Not more than 5%
1. Pradhan Mantri Mudra Yojana
The Indian government launched this initiative with the motto of “fund the unfunded” to provide adequate capital to small businesses. The small business scheme works under the Micro-Units Development and Refinance Agency (MUDRA) Organisation responsible for providing loans to companies with fewer funds.Under the MUDRA Yojana loan scheme, there are three types of loans that entrepreneurs can choose from:
1. Tarun Loans (Rs 5 lakh-10 lakh)
2. Kishor Loans (Rs 50,000-5 lakh)
3. Shishu Loans (Up to Rs 50,000)
2. MSME Business Loans In 59 Minutes
This government initiative provides immediate capital to Micro, Small and Medium Enterprises. The Indian government has introduced the MSME loan in the 59 minutes scheme to enhance the process through which these companies get credit. The MSME loans in 59 minutes scheme allow MSME business owners to avail of an instant business loan from a consortium of Public Sector Banks (PSBs).
The 59 minutes loan ensures that MSME business owners get in-principle approval for a business loan of up to Rs 5 crore in 59 minutes from various public sector banks.
3. Credit Guarantee Scheme (CGS)
The Credit Guarantee Scheme (CGS) is a type of government business startup loan that provides collateral-free loans to small businesses as long as they pay the guarantee fee to the lender.The small business scheme works under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the Ministry of MSMEs and the Small Industrial Development Bank of India (SIDBI). Entrepreneurs can utilise the business loans scheme to take a maximum loan of Rs 2 crore, with the loan guarantee cover being 75% for credit up to Rs 5 crore and 85% for credit up to Rs 1 crore.
Apart from self-help groups, training institutions and educational institutions, manufacturing companies and services activities are eligible to apply for the CGS scheme.Sapna aapka. Business Loan Humara.
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4. National Small Industries Corporation Subsidy
The National Small Industries Corporation is a department under the MSMEs and is certified by ISO to offer marketing, finance, technological support and other services to small businesses. Small entrepreneurs can use the scheme through its two initiatives–the Marketing Support Scheme and the Credit Support Scheme.
The Marketing Support Scheme assists businesses in areas such as Tender Marketing, Space Marketing, Machines and Equipment Selling etc. On the other hand, the Credit Support Scheme supports small businesses by providing credit for up to 180 days and security as a bank guarantee.
5. Pradhan Mantri Employment Generation Program (PMEGP)
The Pradhan Mantri Employment Generation Program provides a maximum project cost of up to Rs 25 lakh in the admissible sector and Rs 10 lakh in the business sector. The loan amount is approved at the national level under the Khadi and Village Industries Commission (KVIC).
However, once approved, the loan is disbursed into the bank accounts through state-level agencies such as the state KVIC directorates, District Industries Centre (DICs), State Khadi and Village Industries Board (KVIBs) and the designated banks. The loan is available only for new projects, and the units already availed of a subsidy from other government departments are not eligible under the scheme.
Factors affecting the Eligibility Criteria of an Applicant
There are multiple reasons that can be a deciding factor for eligibility while applying for a Government Loan Scheme, such as:
- Age of the applicant
- Nature of the Business
- Years of existence of the business
- Annual business turnover, ITR, P&L statement
- Applicant’s creditworthiness or the company’s credit rating
Loan amount that is being applied for - Repayment capability
Capital investment - Debts, existing loans, past payment defaults
Avail Of An Ideal Business Loan From IIFL Finance
Along with government business startup loans, you can get an ideal business loan from IIFL Finance. We offer loan products such as MSME business loans that are collateral-free with attractive interest rates and tailor-made for MSMEs with less financial needs. You can apply for the loan online by verifying your KYC details or visiting IIFL Finance nearest branch.
The loan application is paperless, with only minimal documents needed. IIFL Finance small business scheme is at par with government startup loans and offers instant approval and disbursal of the business loan amount. The IIFL Finance MSME loans do not require pledging an asset as collateral, and you can get the loan amount through a simplified loan application process.
FAQs:
Q.1: Does a small business loan interest attract GST?
Ans: No, MSMEs do not need to pay GST since businesses with a yearly turnover of less than Rs 6 crore are exempt from this rule.
Q.2: Do I need to pledge collateral to take an MSME business loan from IIFL Finance?
Ans: No, this type of loan does not require collateral to sanction the loan.
Q.3: Is it mandatory to have a business plan before availing of a start-up business loan?
Ans: Yes, for the approval of the startup loan, it is mandatory to have a business plan before applying.
Q4. What is the minimum loan amount that the Government Loan Schemes offer?
Ans. There is no minimum amount as such to borrow under the Government loan schemes. The most popular scheme for minimum amounts is the Pradhan Mantri Mudra Yojana.
Q5. What if I am a beginner and have been rejected by private and public sector banks while applying for a startup loan for my business??
Ans. For entrepreneurs who are just venturing out to set up their one business, can approach Small Finance Banks, Microfinance Institutions and Non Banking Financial Companies, if they have been already rejected by private or public sector banks. They can also check with multiple schemes initiated by the Govt of India such as Mudra Scheme under PMMY, MSME 59 minute Loans, Pradhan Mantri Employment Generation Program (PMEGP) among others.
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