MSMEs (Micro, Small, Medium Enterprises) are considered instrumental in eradicating unemployment, income inequality, poverty, etc. Moreover, these sectors hold a pivotal role in providing employment to chunks of the population and contribute around 27% of GDP. Keeping the unparalleled importance of MSMEs, the Government of India has come up with Government Business Loans to help entrepreneurs secure working capital and expand their enterprises.
There are 5 government business loan schemes you can choose from. This article provides a detailed overview of these Government small business loans along with eligibility criteria, documents required and how to apply. Read on!
Here’s a list of Government business loan schemes:
MUDRA stands for Micro Units Development and Refinance Agency Ltd. and is also known as start-up business loans. It provides refinancing support to NBFCs and Banks for lending to small businesses that require loans up to Rs.10 lakh. MUDRA loan is a collateral-free credit option that borrowers can avail of at an affordable interest rate. Moreover, borrowers can choose to extend the repayment tenure. A processing fee or prepayment charges are not applicable for closing the loan account. Enterprise/business owners associated with trading, service activities, women entrepreneurs, etc. are eligible for MUDRA loans.
Under the MUDRA loan, individuals are offered three other loan schemes:
MSME (Micro, Small, Medium Enterprises) loan or PSB loan in 59 minutes is a Government-launched digital platform ensuring faster disbursal of loan amounts for those who want to spread out their current enterprises. Borrowers can access a lump sum loan amount from Rs.1 lakh to up to Rs.5 crore within 59 minutes at an interest rate of 8.50% p.a. from NBFCs and banks. The borrowers do not have to pledge any collateral as this portal is linked with the CGTMSE scheme (Credit Guarantee Fund Trust for Micro and Small Enterprises).
Technological advancement is responsible for the growth of a business entity. However, maximum small enterprises cannot afford the high cost associated with integrating technological up-gradation. Credit Linked Capital Subsidy Scheme (CLCSS) was launched to provide financial aid for technological modification of business, working capital, etc. Individuals can use the fund to revamp business essentials like manufacturing, supply chain, marketing, etc.
Borrowers can derive a loan principal of Rs.1 crore. Moreover, they can get financial aid in the form of a 15% subsidy on a maximum loan quantum of Rs.15 lakhs. In addition, MSMEs of individuals from the SC/ST category will receive an additional subsidy of 10% after the disbursement of the mentioned 15% subsidy.
Under the NSIC (National Small Industries Corporation) scheme, individuals get financial assistance in marketing, technology, finance, raw materials, and other requirements needed by the firm. This ISO certified Indian Government MSME enterprise helps businesses prosper in this competitive business landscape.
Small scale industries will reap the benefit of cost-free tenders under the marketing assistance program. Moreover, small scale industries are not liable to pay any security deposits and are provided further financial support for land and building departments if their project expense is not above Rs.25 lakh.
NSIC provides the following schemes:
Stand up India is a Government business loan scheme for women entrepreneurs and people from minority categories like SC and ST. This scheme is backed by SIDBI (Small Industries Development Bank of India) and grants loan amounts ranging from Rs.10 lakh to Rs.1 crore.
Stand Up India provides financial support to enterprises associated with manufacturing, trading, agriculture, services, etc. Moreover, if the fund is obtained for a non-individual enterprise, eligible applicants that are SC/ST individuals or women entrepreneurs must hold 51% of the shareholding stake. Points to keep in mind are that this loan is not a collateral-free loan. Stand Up India Loan is secured by pledging collateral or through the guarantee of the Credit Guarantee Fund Scheme for Stand-Up India Loans (CGFSIL).
With the increasing digitisation in the financial sector, it has become very easy for borrowers to avail of business loans online from the comfort of their homes. Here are the steps that will guide applicants to avail of government business loans:
After submission, lenders scrutinise and verify the application process and disburse the loan amount directly to the mandated account.
Borrowers can also apply for government business loans offline by directly visiting the bank and submitting the necessary documents.
It is imperative for borrowers to adhere to the eligibility criteria before applying for government business loans. Here’s a list of eligibility criteria for Government business loans:
Besides adhering to the eligibility criteria, borrowers need to keep the following documents in order, helping them receive quick loan approval and disbursement of the loan principal.
The Indian Government has launched several loan schemes to promote MSMEs and revive the country’s economy. A government business loan is a helpful credit option that allows entrepreneurs to start their professional journey. To get the business loan easily and avoid last-minute hassles, borrowers must have well-rounded information on the type of enterprises the Government business loans support, their eligibility criteria and the documents required.
Ans: You can conveniently reach out to any of the mentioned financial institutions to avail a mudra loan:
– Indian bank
– Kotak Mahindra Bank
– ICICI Bank
– Oriental Bank of Commerce
– HDFC Bank
– Allahabad Bank etc.
Ans: Government loan schemes for new businesses and existing ones come with various convenient payment methods. For example, you can repay the business loan principal by post-dated cheques, direct debit, and electronic clearing services (ECS).
Ans: No. You can avail a business loan without pledging your asset as collateral. This is because lenders disburse the loan amount depending on the borrower’s credit score instead of scrutinising your asset. However, some credit support like Stand Up India may require you to pledge collateral.
Ans: If you are denied a start-up loan from a bank, you can easily avail yourself of it from SFBs (Small Finance Banks), NBFCs (Non-banking Financial Companies) and MFICs (Micro Finance Institutions). Moreover, those who are going to set up their start-ups can seek the assistance of the Mudra loan, Stand up India scheme, etc.
Ans: The monthly instalments that you need to pay towards the repayment of the loan principal depend on the loan amount, interest rate, loan tenure, etc. You can use a business loan EMI calculator to get clarity on the EMI amount.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
What is Primary Deficit? – Example, Formula & MeasuresWhat is a Primary Deficit? Primary Deficit is the difference between the current year’s fiscal... Read More »
What is Financial Ratio Analysis? – Objectives, Types and UsesRatio analysis is a process that allows people to assess the financial health of a company. Using t... Read More »
Treasury Management – Its Functions, Types and BenefitsEven the most well-funded business can run into huge losses if it does not have the resources to fu... Read More »
How Anti Money Laundering Combats Financial Crime?Anti Money Laundering (AML) is a system of rules, laws, regulations, and procedures that financial ... Read More »
Key Difference Between Factoring and Forfaiting in Trade FinanceFactoring and forfaiting have grown in prominence as major sources of export financing. For the uni... Read More »
What is Factoring and its Importance in Financial Management?Factoring is a practice in which a company buys the accounts receivable of another company at a dis... Read More »
What is Budget Surplus: Its Effects, Advantages and Impact with ExamplesWhen the revenue of a government, business, or individual exceeds its expenses in a given period, i... Read More »
What is Balanced Budget – Components, Importance and ExamplesIn financial planning or the budgeting process, a balanced budget is one in which total anticipated... Read More »
What Does Inflationary Gap Mean in Macroeconomics?In macroeconomics, the difference between current and potential GDP is known as a gap. This gap is ... Read More »
What is Accounting Conservatism in Finance and How Does it Work?Accounting conservatism involves a conservative set of accounting guidelines wherein the worst-case... Read More »