Top 6 Government Loan Schemes for Startups, Businesses & MSMEs – 2023

The government offers various popular business launch credit options to aspiring entrepreneurs as well as existing businesses. The following are the features and benefits of the top six government business loan schemes for starting a new firm or expanding an existing one:

1. Mudra Loan under PMMY

The Micro Units Development & Refinance Agency Ltd. (MUDRA) loan is a government-sponsored loan plan administered under the Pradhan Mantri Mudra Yojana (PMMY) that provides financing to non-corporate, non-farm small/micro-enterprises. Private and public sector banks, non-banking finance companies, regional rural banks (RRBs), small finance banks, foreign banks, and micro finance institutions can provide Mudra loans. Interested applicants should contact one of the lending banks listed above or apply online at the official website. Business owners, small-scale firms, startups, self-employed professionals, and MSMEs are the most likely to use Mudra loans.

Features:

• Loans for small businesses with no collateral
• Interest Rates That Are Competitive
• Nil processing fee on loans up to Rs. 10 lakh
• There are no prepayment penalties.
• Repayment terms ranging from 12 months to 5 years
• Women Entrepreneurs Can Get Special Interest Rates
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Eligibility:

• The applicant's minimum age should be 18 years old and maximum age should be 65 years old.
• Applicants with no prior loan defaults and a solid repayment history

Individuals, MSMEs, and sole proprietorships/enterprise enterprises in rural and urban regions can also apply for the Mudra loan under the Non-Corporate Small Business (NCSB) sector. Some instances of NCSBs are provided below:

• 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 many other business entities

Individuals, business owners, self-employed professionals, and MSMEs in the manufacturing, trading, and service sectors are eligible to qualify for MUDRA loans. Loans under government programs for women entrepreneurs are also available through Mudra Yojana. The categories and loan amounts available under the Mudra loan are shown below:

Types of 3 Mudra loan schemes along with offered loan amount:

• Shishu: Loan Scheme: Up to Rs. 50,000
• Kishor: Loan Scheme: From Rs. 50,001 and up to Rs. 5,00,000
• Tarun: Loan Scheme: From Rs. 5,00,001 and up to Rs. 10,00,000

Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs – 2023

2. Stand Up India

Stand up India was founded by the Small Industries Development Bank of India (SIDBI) to provide money to people from the SC/ST group as well as women entrepreneurs. This initiative grants bank loans ranging from Rs. 10 lakh to Rs. 1 crore to at least one SC/ST and one female borrower per bank branch.

Eligibility Criteria:

Loans under this scheme are available to enterprises that are involved in the trading, manufacturing, or services sectors. Non-individual enterprises are required to have a minimum of 51% of their shareholding stake held by a SC/ST or female entrepreneur.

Interest Rate & Features:

• Rate of Interest: Bank’s (Base Rate (MCLR)) + 3% + Tenor Premium
• Composite loans can be availed between Rs. 10 lakh to Rs. 1 crore to cover 85% of the project, inclusive of the term loans and working capital loans
• The specification of the loan is expected to cover 85% of the project cost. However, it will not be applicable if the borrower’s contribution along with convergence support comes from any other schemes that exceed 15% of the project cost

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3. PSB Loans in 59 Minutes

On November 5, 2018, the Prime Minister inaugurated a specialized digital platform or online portal called psbloansin59minutes.com to enable loans of up to Rs. 5 crores to be approved for startups, enterprises, and MSMEs in just 59 minutes. The Indian government created this loan initiative to provide financial help to Startups, Micro, Small, and Medium Enterprises (MSMEs) across India. The following are some of the most notable characteristics of this loan type:

• Rate of interest: 8.50% p.a. onwards
• Loan amount: From Rs. 1 Lakh and up to Rs. 5 crore
• Collateral-free Loans: Collateral or security is not required because the web portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.
• Fast access to financial assistance: Typically, such loan processes take 7-10 working days to complete. However, the loan approval process takes only 59 minutes.

4. National Small Industries Corporation (NSIC) Subsidy

Under the National Small Industries Corporation Subsidy (NSICS), the government assists small firms with two financial benefits: marketing support and raw material assistance. Its advantages are as follows:

• Cost-free tenders: Small-Scale Industries (SSIs) will have free access to tenders under the marketing support program.
• No Security Deposit required: Small Scale Industries (SSIs) are excluded from paying a security deposit when borrowing money.
• Land and Building Financing: The initiative provides a financial aid for the land and construction department for SSI units with a project cost of not more than Rs. 25 lakh.

It's not the case that government loan subsidies are included in every program. 

Find below the list of banks offering credit facilities under the Bank Credit Facilitation Scheme from NSIC:

• AU Small Finance Bank
• Axis Bank
• Bank of Baroda
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Federal Bank
• HDFC Bank
• ICICI Bank
• IndusInd Bank Ltd.
• Karnataka Bank
• Kotak Mahindra Bank
• State Bank of India
• Tata Capital
• Union Bank of India
• Yes Bank

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5. MSME Loan Schemes from SIDBI

Launched in 2015, SMILE is governed by the Small Industries Development Bank of India (SIDBI). The aim of this scheme is to provide soft loans, meet the required debt-equity ratio for the establishment of new MSMEs, and also to enable the growth of existing ones. Below mentioned are the MSME loan schemes offered under SIDBI:

• General Purpose Term Loan
• Secured Business Loans for MSMEs
• SIDBI and Google Partnership for Assistance to Micro Enterprises (SANGAM)
• SIDBI’S Term Loan to enhance the production of MSMEs (STEP) Scheme
• SIDBI Assistance to Export Oriented MSMEs under UBHARTE SITAARE PROGRAMME
• SIDBI Thematic Assistance for Purchase of Capital Assets in New Enterprises (STHAPAN)
• Assistance to Re-Energize Capital Investments by SMEs (ARISE)
• SIDBI Term-Loan assistance for Rooftop Solar Photovoltaic (PV) Plants (STAR)
• SIDBI – Loan for Purchase of Equipment for Enterprise’s Development Plus (SPEED PLUS)
• SIDBI – Loan for Purchase of Equipment for Enterprise’s Development (SPEED)
• Working Capital (Cash Credit)
• TOP Up Loan for Immediate Purposes (TULIP)

6. CGTMSE

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) initiative was developed by the government to strengthen and facilitate credit delivery in the MSME sector. Public, commercial, and foreign banks, as well as Regional Rural Banks (RRBs) and the SBI with its partner banks, are among the lending institutions included by this plan. The Guarantee coverage limit under the CGTMSE program has been increased from Rs. 200 lakh to Rs. 500 lakh.

Eligible Entities:

Eligible participants include new and existing micro, small, and medium-sized enterprises (MSMEs) in the manufacturing or service sectors, excluding retail commerce, government, education, agriculture, Self-Help Groups (SHGs), and training institutes.

Features:

• For entrepreneurs, the MSME scheme comprises term loans and/or working capital loan facilities of up to Rs. 5 crores per borrowing unit.
• Up to 75% of the credit amount, up to Rs. 1.5 crore, is guaranteed.
• Micro firms are eligible for 85% credit for loans up to Rs. 5 lakh.
• 80% of credit facility for women-owned/operated MSMEs, as well as all loans to the North Eastern Region, including Sikkim
• The guarantee cover for MSME Retail trade is 50% of the amount in default, up to a maximum of Rs. 50 lakh.

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5 Steps to Register with Banks under Govt. Loan Schemes

Step 1: Visit the official website of eligible bank(s) offering business loans under Govt. loan schemes

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

Step 3: Agree to the ”Terms & Conditions” of the Government loan scheme

Step 4: Enter your financial credentials and other information required

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

Factors that affect the Eligibility of an Applicant

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

• Age of the applicant
• Applicant’s repayment history and financial stability
• Nature /Type and vintage of business
• Applicant’s credit score or Company’s credit rating
• Desired Loan amount and chosen repayment tenure
• Annual business turnover, ITR, P&L statement
• Capital Invested and goods/raw materials/equipment/machinery to be used
• Debts, existing loans, or any past defaults, etc.

Individuals, startups, MSMEs, merchants, manufacturers, traders, sole proprietorships, partnership businesses, business owners, public and private limited corporations, major enterprises, and so on are all eligible for government loans. The lowest age to apply for a government company loan is 18 years old, with a maximum age of 65 years old. The minimum business existence for established businesses/enterprises to apply for a loan is at least one year.

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Documents Required

The paperwork needed for these government schemes may differ from one another. However, to give you an idea of what documents you may need to apply 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 for the last 6 months, Last 1 year’s ITR
  • Business Establishment Certificate
  • Business Address and Vintage Proofs
  • Business PAN card, if applicable
  • Proof of belonging to SC/ST/OBC category, if applicable
  • Any other document required by the lender

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  • FAQs

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

    Ans. Borrowing from banks/NBFCs via government loan initiatives has no minimum requirement. Banks can obtain a minimum loan amount through the Mudra Yojana under the PMMY. However, the highest loan amount that can be obtained is Rs. 2 crore (collateral-free).

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

    Ans: The government has more than ten programs available to help businesses get loans. There are many such programs, including the MUDRA Yojana, PSB loans in 59 minutes, CGTMSE, PMEGP, Credit Linked Capital Subsidy Scheme, National Small Industries Corporation Subsidies, Stand Up India Scheme, Credit Guarantee Fund Scheme, and many more.

    Q. How do I get a government loan under PMMY to start a business?

    Ans: To start a business, you can apply for a Mudra loan plan if the required loan amount is up to Rs. 10 lakh. Any government program that provides business loans for startups will have competitive interest rates and flexible repayment choices. If the loan amount is greater than Rs. 10 lakh, you can approach the selected bank or NBFC directly to obtain a business loan. NBFCs offer greater interest rates than public or private limited banks.

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  • Q. How can I get a government loan for a business in India?

    Ans. You can apply for loans through government programs for small enterprises such as Standup India, PMEGP, Mudra Yojana, PMRY, Startup India, psbloansin59minutes, CGTMSE, CLCSS, and so on.

    Q. How much loan can I get for a small business under Mudra Yojana?

    Ans. The highest loan amount available for small enterprises under the Government credit initiative known as MUDRA Yojana is Rs. 10 lakh at lower interest rates. Higher loan amounts can be obtained by submitting an application to private and public sector banks, as well as NBFCs.

    Q. How to get a Startup loan for beginners who are unable to avail loans from private or public sector banks?

    Ans.Small finance banks, micro finance institutions, and non-banking financial companies can lend to startups denied business loans from banks. Indian government schemes including PMMY Mudra Scheme, Startup India, Stand up India, and PSB Loans can be checked in 59 minutes by startups.