Top 7 Business Loans by Indian Government for MSMEs and Start-Ups

Small and medium business enterprises and start-ups form the core of any economy. These are indeed the engines of driving economic growth in the country. Apart from providing employment to millions, they contribute significant tax revenue for the government. Therefore, the Indian Government has always taken initiatives to address the key factors affecting the growth of the MSMEs and Start-ups.

One of the major issues faced by the MSMEs and Start-ups is the lack of loans and credit facilities. The paucity of funds not only hinders the day-to-day operations but also hurts the future growth & potential of the enterprise. The stagnation of businesses can be dangerous for the economy as it will have a negative impact on the GDP.

Thus, the Government of India supports some of the subsidised finance schemes to make Business Loans easily available for MSMEs and Start-Ups.

Business Loan Schemes by Indian Government for MSMEs & Start-ups

When it comes to availing loans for growth, MSMEs and Start-Ups face two basic problems, i.e., lack of credit history and low business credibility.

This is the reason that the Indian Government has taken the onus and introduced several Business Loan schemes exclusively for MSMEs and Start-ups. These loans are offered at subsidized interest rates, along with easy eligibility criteria, and flexible repayment terms. As the government itself can not directly lend money to the MSMEs and Start-ups, it has delegated this task to various banks and government agencies.

Following are the major business loan schemes introduced by the Indian Government for MSMEs and Start-ups:

  1. Pradhan Mantri Mudra Yojana (PMMY): It is one of the most popular Business Loan schemes at present. Herein, small businesses and start-ups can avail an unsecured Mudra Loan of up to Rs. 10 Lakhs for expansion of their operations through the purchase of machinery, equipment, and tools.

Mudra Loans are offered through various financial institutions, including public sector banks, private sector banks, rural banks, credit co-operative societies, etc. Implementation of this scheme is overseen by the Micro-units Development and Refinance Agency (MUDRA), an agency of the Indian Government. 

Mudra Loan Interest Rates are much lower than other unsecured Business Loans as they are highly subsidized by the government. Presently, Mudra Loan interest rates start from as low as 8.40% and can go up to appx. 12.45%. The maximum repayment tenor for Mudra Loan has been capped at 84 months. These loans are offered to micro and small units operating in the manufacturing or services sector. There are three different types of Mudra Loans offered presently:

  • Shishu: Borrowers are offered loans of up to Rs. 50,000 under this scheme.
  • Kishor: Herein, borrowers are offered unsecured loans of up to Rs. 5 Lakh.
  • Tarun: Under this scheme, borrowers can avail amounts of up to Rs. 10 Lakh.
  1. Credit Link Capital Subsidy Scheme for Technology Upgradation: This scheme was introduced by the Indian Government to help small businesses undertake technological upgradation. The latest technology can help reduce the time and cost of manufacturing as well as improve the quality of products. Herein, businesses are offered a capital subsidy of up to 15% on the investment for the purchase of eligible machinery or supply chain improvements. The maximum amount available as a subsidy herein is Rs. 15 Lakh. The implementation of the scheme has been assigned to the Ministry of Small Scale Industries.
  1. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGSMSE): This scheme from the GoI aims to make available funds for small businesses and start-ups at concessional interest rates through Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Under this Business Loan scheme, assurance is provided to lenders. In case of any default by the borrower, they will be reimbursed by the trust in the ratio of 50%/ 75%/ 80%/ 85% of the principal outstanding. Under this scheme, loans of up to Rs. 2 crore are offered to MSMEs with special preference to female applicants. 
  1. SIDBI Make in India Loan for Enterprises: SIDBI Make in India Loan For Enterprises (SMILE) are offered to micro and small units. Herein, MSMEs belonging to 25 sectors identified by SIDBI will be receiving financial support from the Government under the “Make in India” campaign in the form of subsidised interest rates. These loans are offered in the form of soft loans or term loans. The maximum amount available for new enterprises is Rs. 50 Lakh and for existing businesses, it is Rs. 25 Lakh. The rate of interest applicable against soft loans for the initial period of three years varies between 9.15% to 9.35%. From the fourth year onwards, the interest rate will increase to 11.70%-12.70%, depending on the rating of the borrower.
  1. Bank Credit Facilitation Scheme: Business Loans under this scheme are offered by the public sector and private sector banks in the form of working capital loans and term loans. The maximum amount available under this scheme can go up to Rs. 5 crore with the repayment tenor capped at 7 years. The monitoring of this scheme is undertaken by NSIC (National Small Industries Corporation) through various banks, with whom NSIC has signed an MOU. The aim of NSIC is to allow MSMEs to Avail Business Loans at Lower Interest Rates by offering support for documentation as well as other processes involved in availing the loan.
  1. MSME Business Loan in 59 Minutes: Under this scheme, Business Loans are offered to MSMEs to encourage them to expand their operations and contribute to the growth of the economy. Loan amounts of up to Rs. 1 crore are available for eligible MSMEs. The Business Loan applications are approved or disapproved within 59 minutes, while the disbursal process can take between 8-10 working days. The minimum interest rate has been fixed at 8% under this scheme. A processing fee of Rs. 1,000 + GST is applicable against the loan applications. This scheme is being offered through various public sector banks identified by the government. 
  1. Stand-up India scheme: This scheme is aimed to provide financial assistance to women entrepreneurs and SC/ ST entrepreneurs. Herein, Business Loans of between Rs. 10 Lakh to Rs. 1 crore are offered at subsidised interest rates for setting up greenfield projects. In order to be eligible for assistance under this scheme, the enterprise must either be owned by or should have at least 52% stake held by women and SC/ ST entrepreneurs. The borrower must contribute 10% margin towards the project cost while the loan amount will cover for 75% of the cost. In order to avail this facility, borrowers must provide collateral or approval from Credit Guarantee Fund Scheme for Stand Up India Loans.

The Government of India is promoting the growth of MSME units through these different Business Loan schemes. In a developing country like India, the progress of the economy is significantly dependant on the growth and performance of the industrial sector.

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