Capital is vital for all businesses, especially small businesses, to invest in equipment, supplies, operational expenses, manage cash flow, and so on. Business loans provide a good opportunity for businesses to obtain funds to operate and expand their businesses. Recognizing the MSME sector’s critical contribution to the economic growth and development of our country, the government has supported and prioritized the sector by formulating different loan schemes and initiatives for its growth and development. Understanding the government business loan scheme in India in 2024 is important for businesses to avail the suitable loan scheme as per their requirements and benefit the most from it. Here we discuss the top 5 government business loan schemes that businesses can benefit from, in India in 2024 in detail.
The government business loan scheme is an important initiative to help micro, small, medium, and large businesses formulated by the government. It is designed to support the business activities of enterprises, from new ventures to expansion projects. Business loans can be of different types like term loans, working capital loans, overdrafts, start-up loans, or equipment financing loans, depending on the requirements, business plans, and business size.
Types of government business loans
Government business loans are designed to promote entrepreneurship, support SMEs, and foster economic development. There are special loans for women entrepreneurs, MSME’s, start-ups, etc. These loans can be availed through different financial channels, including private and public sector banks (PSBs), regional and rural banks (RRBs), micro- and small finance banks and non-banking financial institutions (NBFCs). The five important government loans are:
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Mudra Loans: Pradhan Mantri Mudra Yojana (PMMY)
Mudra Loans is a centrally sponsored financial initiative designed to provide funding to non-corporate small and medium enterprises. The institution refinances the loans that authorized private and public sector banks, RRBs, small finance banks, urban cooperative banks, microfinance institutions, and NBFCs provide credit to the eligible borrowers. They can avail loans under the PMMY scheme.
Eligibility
Non-corporate small businesses like proprietary concerns, partnership firms running small manufacturing units, and service sector units are eligible.
The loans are offered according to the stages of growth, development and funding needs. They are further classified into
- Shishu: This is the primary stage for starting new businesses with funding up to Rs. 50000.
- Kishore: This scheme is for businesses that have already started their business and require loans ranging from Rs. 50000 to Rs. 5 lakh.
- Tarun: This scheme is for growth and development of businesses. Loans up to Rs. 10 lakh are granted
As per the Union budget 2024, the loan limit has been increased to Rs. 20 lakhs for borrowers who have repaid loans availed earlier under the ‘Tarun’ category
Margin:
A margin of 20% must be provided by the borrowers for loans starting from Rs. 50000 to Rs. 10 lakh.
Tenure:
Three to five years, including a moratorium period up to six months.
Interest rate:
The interest rates are based on the MCLR based rate as per the internal rating.
Processing fees:
A processing fee of up to 0.5% for loans up to Rs. 10 lakhs.
Features
- Ideal for start-ups and small businesses
- Simple application and sanctioning processes
- Special focus on women entrepreneurs
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Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFSMSE)
The CGFSMSE is a central government initiative for MSMEs. It aims to reduce the risk for banks and financial institutions by offering guarantee covers for collateral-free loans to eligible borrowers. It can be in the form of term loans, working capital loans, or both. Set up by the Ministry of Micro, Small and Medium Enterprises jointly with government of India and Small Industries Development Bank of India (SIDBI), the loans are provided to businesses through authorized banks and other financial institutions based on project viability or credit worthiness of the business.
Eligibility
Small and micro enterprises, startups engaged in manufacturing and services are eligible to avail the loans under this scheme.
Amount of Loan
Loan amounts up to Rs. 2 crore are offered to eligible borrowers.
Interest rate:
Interest rates are based on the MCLR based rate as per internal rating.
Guarantees and service fees
A guarantee fee of up to 2% per annum and a service fee of 1.5% per annum is applicable on the loans.
Features
- Reduced risk due to the guarantee cover encourages banks and financial institutions to provide loans to MSME’s without collateral or third-party guarantees.
- The guarantee cover enables easier access to credit for MSMEs with no or weak credit profiles.
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Stand Up India Loan Scheme
This scheme is specifically designed to help finance Scheduled Caste (SC) or Scheduled Tribe (ST) and women entrepreneurs to set up greenfield projects to foster inclusive growth of this sector.
Eligibility
Persons belonging to scheduled caste, scheduled tribe and woman entrepreneurs over the years of 18 are eligible for loans under this scheme.
Loan amount and type
Amount up to 85% of the project cost is sanctioned in the form of term loan, working capital loan, or overdraft loan, starting from Rs. 10 lakhs to Rs. 1 crore.
Rate of interest
Interest rate is MCLR +3% tenor premium
Security
Security for the loan is primary security plus the credit guarantee of the fund scheme.
Margin
The borrower must provide a margin of 10 to 15 % of the project cost.
Tenure
The tenure of the loan is up to seven years, with a moratorium of 18 months.
Features
- Benefits target groups like SC, ST and women entrepreneurs.
- Borrowers can avail the loans at attractive rate of interest and better terms because the government subsidizes .
- Loan amounts between Rs. 10 lakhs and Rs. 1 crore can be very helpful for small businesses, especially in the target sector, without help from other sources.
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SIDBI Loans
SIDBI offers a wide range of loans and finance schemes at attractive interest rates to eligible MSMEs up to Rs. 25 crores, depending on the needs of the businesses and their project viability. Some of the popular schemes under SIDBI are:
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I) SMILE (SIDBI Make in India Loan for Enterprises)
This scheme is intended to further the government’s ‘Make in India’ project by helping MSMEs participate in the programme. In this scheme, loans on soft terms are provided to newly established MSMEs and entrepreneurs to meet their debt-equity ratios.
Eligibility
Newly set up enterprises in manufacturing and the services sector are eligible to apply for this loan. Existing enterprises wishing to expand and grow using new technologies and emerging possibilities towards modernization are also eligible for these loans.
Amount
The minimum loan amount of Rs. 10 lakhs for equipment and finance and Rs.25 lakhs for others is offered under this scheme.
Tenure
The loan repayment period is up to 10 years, with a moratorium of up to 36 months.
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II) MSME business loan scheme in 59 minutes
MSMEs with a good credit history can get a loan approved within a short period of time of 59 minutes under this scheme that is initiated by SIDBI. Speed, which is very crucial for small businesses facing credit crunch, is the aim of this scheme.
Eligibility
MSME businesses with good credit history and creditworthiness are eligible to avail this loan.
Amount
Amounts ranging from Rs. 10 lakhs to Rs. 5 crores are offered by public and private sector banks and NBFCs.
Tenure
The repayment tenure can range from 1 year to 15 years, depending on the type of loan.
Rate of Interest
Interest rates usually range from 10% to 15% per year and can vary depending on the lender.
Features
- Speedy loan approval for eligible borrowers within 59 minutes.
- A good scheme to source funds for working capital needs
- A loan scheme that has minimal documentation and nominal paperwork
- scheme supports credit worthy borrowers with good credit rating who are GST and IT compliant
Read more:
MSME Subsidies 2024
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The NSIC Subsidy Schemes
The National Small Industries Corporation offers a comprehensive support system to MSMEs. They provide soft loans, equity assistance and guarantees, marketing opportunities, access to technical knowledge, and other tools to help the sector grow and be competitive and productive.
Eligibility
The scheme is open to creditworthy small businesses. The criteria may vary depending on the type of scheme.
Interest Rate
The interest rates vary depending on the type of loan and the lender. They are usually market competitive and negotiable depending on the business profile fo the borrower.
Tenure
The tenure of the loan can vary depending on the type of loan and the lender.
Features
- Businesses can avail a comprehensive suite of services, including raw material procurement, access to credit, marketing assistance, access to advanced technology, testing, and skill development.
- The scheme provides credit guarantees, technological upgrades, export promotion programs, and participation in trade shows and exhibitions with potential international buyers and partners.
- NSIC offers training, mentorship and support to aspiring entrepreneurs in various aspects of business development.
- They also provide the necessary infrastructure for startups to grow and thrive.
Also read:
Empowering MSMEs: A Comprehensive Guide to Government Schemes and Support for MSME
Factors affecting government business loans
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Creditworthiness
A strong credit history improves the chances of securing government business loans at competitive rate, better terms and a higher amount of loan.
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Business plan
A good business plan outlining the business model, financial projections, market research and growth strategies is important to secure a good business loan.
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Sector and purpose
The type of business and sector are important. For example, a sector that is performing well and with good growth potential are preferred by lenders. Purpose is also vital, example, whether the finance is required for a startup or for expansion or for working capital, etc., can affect the terms of the loan sanction.
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Government policies
Changes in government policies and economic conditions can impact the availability of government business loans.
Key features of government business loans
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Lower interest rates
Government business loans typically offer loans at lower interest rates compared to commercial loans, making credit affordable for the borrowers
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Collateral free
Many institutions provide collateral free loans with the guarantee covered by CGTMSE, which is very useful for startups without substantial assets to offer as guarantee.
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Simple application process
The application processes are simple and involve less documentation and minimal paperwork so that small businesses can avail hassle free financial assistance faster and on competitive terms.
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Flexible repayment options
The repayment options are often flexible, giving businesses the time and resources to grow and succeed.
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Subsidies and grants
The government schemes that provide subsidies and grants help to reduce the burden of margins and cost of borrowing for the small businesses
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Training and guidance
Many government schemes offer training, mentorship and other schemes that are very helpful for the MSME’s. For example, the NSIC subsidy schemes offer a comprehensive support to the sector to grow and thrive.
Benefits of government business loans
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Access to capital
Capital requirement is vital for MSMEs. Government business loans provide the necessary capital for startups and for expansion and innovation.
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Support for entrepreneurs
Entrepreneurs face difficulty in getting finance due to lack of credit history and credit score. Government business loans encourage entrepreneurs with various loan schemes and initiatives that help them to be competitive in the ever-evolving business landscape.
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Encourages innovation
The government encourages innovation with various schemes like the ‘make in India’ scheme, the NSIC subsidy scheme that encourage businesses with various support schemes from finance, training, technical assistance, upgradation to marketing and export promotion programmes.
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Economic development
The contribution of small businesses to the overall economy in terms of GDP, employment generation, export, manufacturing and industrial production is huge. Development of this sector leads to economic growth in the country.
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Relieves financial burden
As government business loans are offered at lower interest rates and flexible repayment terms, they reduce the financial burden on businesses, allowing them to focus on growing their business.
Conclusion
Government business loans provide invaluable support to entrepreneurs, especially in the MSME sector. It is important for businesses to understand the various schemes and initiatives that the government provides for the development of this sector. By having a thorough understanding of the various schemes and initiatives, businesses can make informed decisions about the scheme that best suits their needs. These loans offer substantial benefits such as lower interest rates, flexible terms, and access to capital, fostering a thriving entrepreneurial ecosystem and boosting the economy of India.
Frequently asked questions
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How can I apply for a business loan?
Answer: Government of India has provided an online platform for businesses to register for business loans called ‘Udyami Mitra’. Borrowers must first register in this portal, choose the type of loan and the institution and then apply for the loan.
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What type of business loans can I apply for through the ‘Udyami Mitra’?
Answer: Businesses can apply for Mudra loans, Stand up India loans, SIDBI loans, and others through the ‘Udyami Mitra’.
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What is Udyogini?
Answer: The Indian government started the Udyogini scheme to empower and encourage women entrepreneurs. The Women Development Corporation of India introduced this project to assist women with finance to start their own business.
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What are ‘Start-up India’ and ‘Skill India’ schemes?
Answer: ‘Start-up India’ is an initiative started by the Government of India to encourage start-ups through access to finance, subsidies, guarantees, tax benefits and incubation support. ‘Skill India’ is an initiative to promote skill development and entrepreneurial support to youth and offers many subsidies and financial aid to set up new businesses.
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What is an overdraft loan?
Answer: Overdraft loans allow businesses to withdraw funds from their account that exceed the available balance. Interest is applicable only on the amount withdrawn based on the sanctioned limit. Overdraft limits are set by the financial institution by analyzing the business’s cash flow, repayment capacity, financial stability, etc.