Top 7 Government Loan Schemes for Small Business in India

Government Subsidy Loan For Business

India has about 40 million Micro Small and Medium Enterprises (MSMEs), including registered and unregistered ones. MSMEs fall under the categories of both the organized and the unorganized sectors. These MSMEs contribute to about 40% of the total GDP of India, and it remains a critical source of employment. The MSMEs provide solutions to critical issues in the country like poverty, unemployment, income inequality, regional imbalances, etc. The government for this purpose has introduced various schemes under subsidy loan for business to sanction loans to MSMEs to boost their business and their economy including government subsidy loan for business.

Understand Your Business Loan Needs

Before choosing government schemes for business, it is essential to assess what kind of financing your venture truly needs. 

• Loan Amount: Evaluate the amount of loan you need. This could range from a small sum for meeting short-term capital needs to a large amount for business expansion or new projects. Knowing the exact amount will help you avoid borrowing too much or too little. 
• Business State: Identify the state of your business. Whether you are a startup entrepreneur seeking initial funding or a well-established company looking to scale, different loan schemes cater to different business phases. For instance, early-stage ventures might need smaller and flexible loans. On the other hand, a growing business might require substantial amounts for market expansion or new machinery.
• Industry: Another important aspect is understanding the industry your business falls into. Government loan schemes often target specific sectors. For example, the Pradhan Mantri Mudra Yojana (PMMY) supports women entrepreneurs and enterprises focused on trading and services. Whereas, the Small Industries Development Bank of India (SIBDI) prioritises lending to Micro, Small, and Medium Enterprises (MSMEs). Knowing your industry’s compatibility with the loan scheme will help you choose the most beneficial financing option. 

List of Government Loans For Small Business

Some of the most significant kinds of Government loan schemes for small businesses are explained.

S.No.	Govt Business Loan Schemes
1.	MSME Loan Scheme in 59 Minutes
2.	Pradhan Mantri MUDRA Yojana (PMMY)
3.	CGFMSE Scheme
4.	Stand Up India Scheme
5.	NSIC
6.	CLCSS scheme
7.	Udyogini Scheme

1. MSME Business Loans in 59 Minutes

MSME business loan in 59 minutes is one of the best loan schemes introduced by the government in September 2018. The business loans sanctioned under this scheme are to boost financial assistance to the growth of the country and to also encourage their growth in the country. The scheme allows new and existing businesses to utilize the financial assistance that is provided by the scheme. The loans provided under these schemes extend up to Rs. 1 crore and take about 8 to 12 days to complete the process, wherein the approval for the loan is received within 59 minutes which is primarily why the name of the scheme is known as MSME business loan in 59 minutes. The rate of interest depends on the nature of the business that is carried on by the applicant of the loan. The interest on such MSME Loan begins at 8.5%, and the loan amount granted under this scheme can range from 1 lakh to 5 lakh. The following are the requirements for obtaining a loan under this scheme:

• GST verifications
• Income tax verifications
• Bank account statements for the last 6 months
• Ownership related documentation
• KYC details

Also Read: MSME/PSB Loans Within 59 Minutes: Is It Really Possible?

2. MUDRA Loans

The MUDRA loans are sanctioned by the Micro-Units Development and Refinance Agency organization that has been established by the government of India for providing finance to units of micro-business. The theme behind MUDRA loans is to “fund the unfunded”. All bank branches across India provide MUDRA loans. Such loans have created the low-cost credit concept for micro and small businesses. The MUDRA loans are categorized as under:

AMOUNT	LOAN CATEGORY
Up to Rs. 50,000	Shishu loans
50,000 to 5,00,000	Kishor loans
5,00,000 to 10,00,000	Tarun loans

Eligibility criteria

All businesses including proprietary concerns, partnership firms, Private Ltd., Public companies and other legal entities can apply for mudra loan under this scheme.

3. Stand-Up India

The Stand-up India scheme was introduced by the Government to provide loans for businesses run by Scheduled Castes/ Scheduled Tribes and women. Small Industries Development Bank of India (SIDBI) governs this scheme. The loan granted under this scheme can range from Rs. 10 lakhs to Rs. 1 crore. Every bank must provide this loan to a minimum of one Scheduled Caste/Scheduled Tribe or woman entrepreneur. According to this loan, the fund is expected to cover about 75% of the cost of the total project.

Eligibility

Those businesses engaged in trading, manufacturing, or other sectors relating to services are eligible to avail of loans under this scheme. If the business is not an individual undertaking, a minimum of 51% of the shares must be held by an individual who is a woman or belongs to a Scheduled Caste/ Scheduled Tribe.

Also Read: Stand Up India Scheme

4. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)

This is a loan scheme that is launched by the government of India that allows for funding through loans without collateral to those businesses that fall under the MSME sector. The loans under the scheme can be granted to both new and existing enterprises. The Credit Guarantee Fund Trust is a trust that has been established by the Ministry of MSMEs and the Small Industries for the purposes of implementing the CGFMSE scheme. The funding under this scheme can provide for working capital loans up to Rs. 200 lakhs with a preference for eligible women entrepreneurs.

Eligibility

Undertakings who are into manufacturing activities like retail trade, educational institutions, self-help groups, and training institutions. Further, businesses which are in the service sector are also eligible to avail of funding under this loan scheme.

Also Read: CGTMSE Scheme

5. National Small Industries Corporation Subsidy

The NSIC is a Government enterprise under the MSMEs, and it is ISO certified. One of its primary functions is to aid the growth of MSMEs by providing services including finance, technology, market, and other services across the country. The NSIC has initiated two schemes in order to promote the growth of MSMEs, which are:

A. Marketing Support Scheme

The scheme supports in the development of any business by devising schemes such as Consortia and Tender Marketing. Such a scheme is crucial as the MSMEs must be aided in order for them to grow in the current competitive market.

B. Credit Support Scheme

The NSIC provides for financial aid to procure raw materials, for activities in relation to marketing and for financing with banks through syndication to MSMEs.

The benefit of this scheme is that it offers small-scale industries access to tenders without them having to bear any costs, and the MSMEs also do not have to pay the security deposits for availing of financial aid under this scheme.

6. Credit Link Capital Subsidy Scheme for Technology Upgradation

This scheme allows small businesses to upgrade their process by financing technological upgradation. Technological upgradation can be related to numerous processes within the organization, such as manufacturing, marketing, supply chain, etc. Through the CLCSS scheme, the government aims to reduce the cost of production of goods and services for small and medium enterprises, thus allowing them to remain price competitive in local and international markets. The scheme is run by the Ministry of Small-Scale Industries. The CLCSS offers an up-front capital subsidy of 15% for eligible businesses. However, there is a cap to the maximum amount that can be availed as a subsidy under the scheme, which is set at ₹ 15 lakhs. Sole proprietorships, partnership firms, co-operative, private, and public limited companies come under the ambit of this business loan scheme.

Also Read: Business Ideas for High Profit with Low Investment

7. Udyogini

Udyogini, meaning women empowerment, is a scheme that has been initiated for empowering Indian women. The scheme has been introduced by the Government of India by the Women Development Corporation. The funding under this scheme is granted in order to support women in meeting their capital requirements for starting a business.

The maximum loan that can be granted under this scheme is Rs. 15,00,000. For a woman entrepreneur to be eligible to apply for this scheme, the woman must be between the age of 18 years to 55 years and the annual income of the family of the woman must not be above Rs. 15,00,000.

There is no limit on income for women who are physically challenged or widowed. There is no processing fee or collateral that is required for availing loan under this scheme.

Women who apply for this loan will have to provide passport-sized photographs, birth certificates, Below Poverty Line Card, Aadhar Card, Caste Certificate, passbook or bank account, ration card, and certification of income to avail of the loan. There are about 88 categories of businesses that are mentioned for which loans can be availed by eligible women.

You can visit a bank/financial institution to inquire about funding scheme for small scale enterprises.

Benefits of Govt Loan Schemes

Some of the essential benefits of government business loans are:

• Lower Interest Rates: One of the most appealing features of government schemes for entrepreneurs is their lower interest rates compared to private loans. This helps businesses reduce their overall borrowing costs, making repayment more manageable and affordable in the long-term. Lower interest translates into less financial strain on growing enterprises. This allows them to focus more on operational growth rather than managing debt. 
• Collateral Free Loans: Many government loan for start up businesses are designed to be collateral-free. This is a huge advantage for startups and small businesses that may not have valuable assets to offer as security. This feature makes financing more accessible to businesses that need capital but cannot meet the stringent collateral requirements of traditional banks. Without the risk of losing personal or business assets, entrepreneurs can take calculated risks to grow their businesses. 
• Simplified Application Process: Government loan schemes for starting a new business typically have a straightforward application process. The focus is on reducing bureaucratic procedures and speeding up the approval process. This ease of access allows business owners to spend more time running their operations instead of getting bogged down in paperwork. The streamlined procedures also make it easier for first-time borrowers to understand and navigate the system. 
• Longer Repayment Tenure: Another advantage of government loans for entrepreneurs in India is the longer duration of loan repayment. This ensures smaller, more affordable monthly instalments (EMIs). This is particularly helpful for businesses that have fluctuating cash flow. A longer repayment period allows businesses to manage their finances better without feeling overwhelmed by short-term repayment pressures. This flexibility supports business growth while maintaining financial stability. 

An Alternative: Quick Business Loans from Lendingkart

While all these schemes display the commitment of the past and present Indian governments to develop the nation’s economy, there is much that needs to be done to make the schemes effective. For example, the refinancing and subsidy model used by the government takes away the ‘quick’ factor from unsecured business loans touted by the schemes.

Since these loans are essentially funded by government-sponsored banks, the turnaround time is in weeks or even months, which is detrimental for a small business owner looking for quick business finance. Even the most ambitious of all these schemes, the 59 Minutes Loan for MSMEs, takes up to 2 weeks in reality.

On the other hand, MSME finance by non-banking financial companies like Lendingkart is approved and disbursed within 72 hours. This is done by combining business analytics and online technologies for loan approval and disbursal instead of relying on paperwork and age-old processing techniques. For instance, Lendingkart offers business loans online through its website or mobile app.

Simply log in to apply for a business loan, get same-day approval, accept the quote and upload your documents digitally for verification. The entire process hardly takes 10 minutes of your time and the verification is completed within 3 working days by Lendingkart. So, you have the funds ready for use within a quarter of the time it takes a government scheme to disburse a loan.

To apply for a business loan with Lendingkart in 3 simple steps, visit us at www.lendingkart.com.

Conclusion

Government loans or funding schemes for small scale enterprises in India offer a significant boost by providing accessible and affordable financing options. With benefits like lower interest rates and collateral-free loans, these schemes are tailored to support businesses at various stages of growth. Whether you need funds for working capital or business expansion, choosing the right loan to start a small business can help ensure your venture’s financial stability. By accessing your specific needs, you can select a scheme from the given list that aligns with your business goals. The longer repayment tenures offered by these schemes further reduce financial strain. This allows businesses to focus on growth and sustainability. With the government’s ongoing efforts to support MSMEs, small businesses in India are well-positioned to thrive. 

Frequently Asked Questions

 

What is an MSME?

An MSME is a Ministry of Micro, Small and Medium Scale Businesses which are small-scale businesses classified under either of the 4 categories according to their investment and annual turnover.

How to avail loans for a startup?

If a start-up does not grant loans by banks, but falls under the MSMEs, then the individual running the undertaking can avail a business loan under any government schemes that have been introduced.

How do Government Business loan schemes work?

The government business loan schemes are brought into force by the government to assist people especially those running Micro, Small and Medium Enterprises in availing financial assistance in the form of loan for business requirements.

What are the requirements to avail a government business loan?

There are certain eligibility requirements that are required for schemes, and such eligibility criteria vary from each other. However, some of the basic requirements are:

• Age of the individual
• Amount of credit sought
• Type of business
• Credit score of the individual Capital invested
• Annual turnover of the business

 

Can grocery businesses or businesses relating to organic farming apply for government loans?

Yes, grocery businesses and even businesses that are involved in organic farming can apply for loans under government schemes as long as they fulfill the eligibility criteria of the particular loan.

Are there any special government loan schemes introduced for women who want to start their businesses?

Yes, government loan schemes such as the Stand-up India scheme and the Udyogini scheme have been introduced in order to avail loans for businesses. Although the Stand-up India scheme is not introduced only for women entrepreneurs, there are social preferences provided to those belonging to Scheduled Caste/Scheduled Tribe and for those entrepreneurs who are women.

What is the minimum amount of loan that is granted by the government under the various schemes introduced by the government in order to grant loans to small businesses?

There is no minimum amount of loan that a borrower has to avail under any of the loan schemes.

What are the documents that are required for availing government business loans?

Different business loan schemes have different requirements as to the eligibility and the documents that are required for granting loans under each of the schemes. However, some of the common requirements for all loans granted under Government loan schemes are:

• Identity proof like PAN card, Driving license, Voter ID, Aadhar Card, Passport or any other card issued as identity proof by the government.
• Proof of address like Driving license, Electricity bill, Aadhar Card, Passport, Bank Statement etc.
• Proof of age like Passport, Driving license, Voter’s ID, Employee ID Card, Aadhar card, Employee card, etc.
• Address proof of business like lease or rental agreement, copy of registry, statement of bank account, etc.
• Passport size photographs
• Details of business plan
• The credit option that the borrower is applying
• Statements of bank account for the last six months
• Income tax filing for the years that have been asked
• List of the directors in case of a company and the partners in case of a partnership firm

What is the maximum amount of loan that an individual can avail under the government loan schemes for small businesses?

There are maximum limits of the amount of loan that can be availed and such differs from one to another depending on the scheme under which the loan is availed.

How to register for loan schemes introduced by the government of India?

The following are the steps to follow for registering for loan schemes that are introduced by the government of India:

• Visit the bank official’s online portal that is associated with the scheme.
• Register yourself on the portal
• Login by entering the one-time password (OTP) authentication sent to the email id/mobile number.
• The applicant must agree to the terms and conditions mentioned in the portal
• The financial credentials and any other information sought by the concerned officers through the portal must be entered.
• The individual can then proceed further by filling the application/form available in the portal and upload the required documents.

Government Loan Schemes News

Increase on interest rate subsidy for MSME exporters: Govt says

The government is thinking about increasing the interest equalization or subsidy advantages provided to small and medium exporters in the yearly budget for 2023–2024. The Reserve Bank of India’s tightening monetary policy would be partially alleviated by the action, easing some of the load on them from interest rates. If the interest subsidy is increased from 3% to 5%, the government is analyzing the cost to the exchequer. As demand in important markets slows, Indian exporters are having difficulty. The finance ministry and the department of commerce are said to have spoken about the suggestion.

Updated Date: 12th January 2023

PM Modi inaugurates 13 Credit-linked Schemes through the OneStop Jan Samarth Portal

With the launch of the Jan Samarth Model, PM Modi has given access to millions of people to get a government loans. The portal has 13 different government programs of which only four are functioning for the present stage. Since it is in the incubation stage, applicants can only apply for education, Company start-up, agricultural infrastructure, and living loans.

The Jan Samarth Portal boasts of a centralized repository in which beneficiaries can get access to 13 different government schemes for credit purposes. The popular loans given to beneficiaries are livelihood loans, business activity, and agri-infrastructure. In addition to this, beneficiaries can instantly know their credit loan eligibility by following a series of easy steps.  Beneficiaries can apply online for the schemes to which they are eligible and wait for digital approval.

The Jan Samarth portal encompasses all aspects of the loan process that is from application to approval. Also, the functionality of the portal enables applicants to verify the current status of their loan applications. Also, a provision is made in the portal for the applicants to send in complaints about the redressal of their grievances.

Updated Date: 17th June 2022