Top Government Loan Schemes for Startups & New MSMEs

 

Top 6 Government Loan Schemes for Startups & New MSMEs

1. MUDRA Loan under PMMY

The government has set up this scheme to provide finance to non-corporate, non-farm small/micro enterprises. Mudra loans can be availed from private and public sector banks, commercial banks, regional rural banks (RRBs), small finance banks and corporate banks. Interested applicants can approach any of the above lending institutions or apply online through the official website of MUDRA. MUDRA loans are majorly used by small scale business and startups.

Features:

• Competitive Interest Rates from banks/NBFCs
• Loan Amount up to Rs. 10 lakh
• Repayment Tenure from 12 months to 5 years
• Collateral-free loans
• Nil Processing Fee
• Zero prepayment charges
• Concessional Interest Rates for Women Entrepreneurs

Eligibility:

• Minimum age of applicant should be 18 years and maximum 65 years
• Applicants with no past loan defaults

Non Corporate Small Business Segment (NCSB) comprising of individual, MSMEs, 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

Individuals, business owners and enterprises engaged in the manufacturing, trading and services sectors are eligible to avail a MUDRA loan. Government loan for women entrepreneurs can also be availed under Mudra Yojana. Below stated are the types and loan amount offered under 3 loan schemes under Mudra loan:

Types of 3 Mudra loan schemes along with offered loan amount

• Shishu: Loan Scheme: Up to Rs. 50,000
• Kishor: Loan Scheme: From Rs. 50,000 and up to Rs. 5 lakh
• Tarun: Loan Scheme: From Rs. 5 lakh and up to Rs. 10 lakh

2. 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.

Interest Rate and Features:

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

3. PSB/MSME Loans in 59 Minutes

On Nov 5, 2018, our Prime Minister, unveiled a dedicated digital platform or web portal named as psbloansin59minutes to enable loans of up to Rs. 5 crore in just 59 minutes for startup business and MSMEs. The government startup loans were launched to provide financial assistance to the Micro, Small and Medium Enterprises (MSMEs) throughout India. Some of the great features about this facility are:

• Rate of interest: The rate of interest offered under this scheme is 8.50% onwards per annum
• Loan amount: The loan amount offered under this loan will be between Rs. 1 Lakh and maximum is up to Rs. 5 crore
• Fast access to financial assistance: Usually such loan processes take about 7-10 working days to complete. However, the loan approval process takes in just 59 minutes
• Quick disbursal: After the loan gets approved in an hour, you can expect the money to reach in your bank account in 7-8 working days

Collateral-free: To avail the loan, collateral is not mandatory as the online portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.

4. National Small Industries Corporation (NSIC) Subsidy

The government aids the small business under National Small Industries Corporation Subsidy (NSICS) with a focus on two financial benefits: marketing assistance and raw material assistance. Its benefits are as follows:

Cost-free tenders: Under the marketing assistance program, the Small-Scale Industries (SSIs) shall have access to the tenders without any costs.

No Security deposit requires: The SSIs (Small Scale Industries) are exempted from paying a security deposit for availing finances.

Land and building financing: For the SSI units with the project cost not exceeding Rs. 25 Lakh, the scheme provides a financial facility for land and building department.

Not every scheme initiated by the Government offers subsidy on loan for businesses.

5. 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 Timely Working Capital Assistance during COVID times scheme is 8.25% onwards.

Eligibility: All existing borrower accounts including under Credit Delivery Arrangement with combined outstanding credit facilities up to ₹25 crore as on 29th Feb 2020.

Loan Amount: Up to 20% of total outstanding loans with SIDBI up to Rs. 25 crore with cap exposure of Rs. 5 crore.

6. 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.

Features:

• 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

Steps to Register with the Government Loan Schemes

Step 1: Go to the nearest bank’s official website eligible to offer loans under Govt. schemes

Step 2: Register on the portal and log in through the One-Time Password (OTP) authentication

Step 3: Agree to the terms and conditions of the Government loan scheme

Step 4: Enter your financial credentials and other information required

Step 5: Proceed further and continue with filling the forms and uploading the required documents

Factors that affect the eligibility of an applicant or enterprise

The key factors that affect the eligibility criteria of an applicant or enterprise are as follows:

• Age of the applicant
• Applicant’s repayment history and financial stability
• Nature and type of business
• Applicant’s credit score
• Loan amount
• Annual business turnover
• Capital Invested
• Debts, existing loans or any past defaults

Government loans are offered to individuals, start-up enterprises, MSMEs, retailers, manufacturers, traders, sole proprietorship, partnership firms, business owners, public and private limited companies, large enterprises, etc. The minimum age criterion to apply for a government business loan is 18 years. For the existing businesses the minimum business existence to apply for a loan is at least 1 year.

Documents Required for Loan Application

The documents required for these government schemes may vary from one scheme to another. However, to give you an idea of what documents might be required when applying for the schemes; we have listed a few common documents:

• Duly filled application form along with Passport-sized photographs
• KYC documents: Applicant’s Identity, Age and Address Proofs: Passport, Voter ID card, Aadhar card, Driving License, PAN card, Utility Bills (Water & Electricity Bills)
• Bank statements of last 6 months
• Business Establishment Certificate
• Business address proof & PAN card
• Proof of belonging to SC/ST/OBC category, if applicable
• Any other document required by the bank

Frequently Asked Questions (FAQs)

Q. What is the minimum loan amount that can be availed under government loan schemes?

Ans. The minimum loan amount that can be borrowed under government loan schemes starts from Rs. 30,000 per applicant.

Q: How many government loan schemes for MSMEs or for startup business?

Ans: There are over ten government business loans schemes present at this movement. Some of them are MUDRA Scheme, MSME loan under 59 minutes, Credit Linked Capital Subsidy Scheme, National Small Industries Corporation Subsidies, Stand Up India Scheme, Coir Udyami Yojana, Credit Guarantee Fund Scheme, etc.

Q. How can I get a government small business loan to start a new business in India?

Ans: You can avail Government bank loan for small businesses by visiting the official website of the government initiated schemes and applying it online or with the respective bank that offers these schemes.

Q. How do I get a government loans to start business?

Ans: To start a business you can apply for Mudra loan scheme, if the required loan amount is up to Rs. 10 lakh. Any government scheme offering business loan for startups will offer competitive interest rate with flexible repayment options. If in case the loan amount required is more than Rs. 10 lakh then you can directly approach the desired bank or NBFC to get a business loan. Interest rates offered by NBFCs are comparatively higher than public or private limited banks.

Q. What is MUDRA Yojana?

Ans: MUDRA is an acronym for Micro Units Development and Refinance Agency. The Indian government established this organisation to enable the non-corporate, non-farm small/micro enterprises with financial assistance. Mudra loan is categorised under 3 loan categories named as Shishu, Kishor and Tarun. Loan amount sanctioned under Shishu category is maximum Rs. 50,000 and goes up to Rs. 5 lakh for Kishor loan scheme. For Tarun loan scheme the maximum loan offered is up to Rs. 10 lakh.

Q: What is an MSME?

Ans: Ministry of Micro, Small & Medium Enterprises (MSME) are basically small scale businesses which are classified in terms of their investment and turnover. MSME is an enterprise wherein the minimum investment in plant and machinery is Rs. 1 crore and goes maximum up to Rs. 50 crore.

Q: How to contact the person behind the schemes?

Ans: The person behind the schemes can be contacted through their official websites and browsing through their ‘Contact Us’ page.

Q. How can I get a government loan for a 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 under Mudra Yojana?

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.

Q. How to get a Startup loan for beginners who are not supported by banks or financial institutions?

Ans. The startups who are denied business loans from banks can opt for loans from Small Finance Banks, Micro Finance Institutions and NBFCs. Startups can also check for schemes initiated by the Government of India that include Mudra Scheme under PMMY, Startup India, Standup India and PSB Loans in 59 minutes.