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Top Government Loan Schemes for Businesses

One of the major objectives of the government in this economy is to increase the ease of business by providing financial assistance to businesses. The small and medium enterprises in India are one of the major backbones of the economy, driving business and money into the system. However, the SME sector and the micro SME sector lack funding and money to conduct business on a large scale. 

The micro, small and medium enterprises solve solutions to problems of the nation, manufacture and produce goods, provide employment to a large percentage of the population create balance in the economy to name a few. This sector contributes to around 8% of the Gross Domestic Product and is responsible for around 40% of the total exports. Currently, our country has more than 40 million registered and unregistered small and medium enterprises, making them a key growth driver of the economy. 

Considering their major impact on the economy, the government has started programs to encourage more participation and contribution from the SME sector. One of the programs is the various loan schemes provided for different businesses. These loan schemes can be anywhere between MUDRA loan scheme to SME loan in 59 minutes and much more. 

Through the introduction of these loans, small and medium businesses in India have able to scale their business because of the funding provided at low interest rates and have seen a surge in their business and economy. 

The top 5 government loan schemes for businesses in India are: 

  1. MSME loan in 59 minutes

The entire objective behind the MSME loan is to finish the paperwork process in under an hour and hence it is called the MSME loan in 59 minutes. The government introduced this loan scheme to provide loans as a working capital requirement for businesses and individuals. 

The unique selling point of this loan is the minimal documentation required for filling out the loan and the great use of technology to process the loan applications too. 

Features of the MSME loan in 59 minutes:

  • The loan amount ranges from INR 1 lakh to INR 5 crore 
  • The loan is issued at an interest rate usually between 8% to 8.5%
  • A special reservation of 3% is available for women entrepreneurs 
  • Private banks, public banks and non-banking financial institutions can issue this loan
  1. Pradhan Mantri MUDRA Yojana (PMMY) 

The Pradhan Mantri MUDRA Yojana or famously known as the MUDRA loan scheme is one of the largest and most favoured loans issued in the interest of the micro, small and medium enterprises section. This loan caters right from the smallest levels of business to the mid and large sections too. 

MUDRA – Micro Units Development and Refinance Agency Ltd. provides loans and refinancing sources to smaller banks and NBFCs who in turn then provide loans to the final end consumer, that is the businesses. In short, they give loans to banks who then give loans to businesses. 

Under the MUDRA Loan scheme, loans are provided to traders, manufacturers, vehicles for commercial use, shopkeepers, etc. 

Categories of MUDRA 

MUDRA loans are divided into 3 categories based on the amount of loan sanctions and the interest rate attached to them. They’re known as Shishu, Kishor and Tarun. 

Shishu – Covers loans up to INR 50,000 at an interest rate of 1-2% per annum 

Kishore – Covers loans between INR 50,000 and INR 5,00,000 at an interest rate of 8.6% and 11.5% per annum 

Tarun – Covers loans between INR 5,00,000 and INR 10,00,000 at an interest rate of 11.15% and 20% per annum

Features of the MUDRA Loan: 

  • Working Capital loans can be issued under the MUDRA loan scheme 
  • The loan is divided into 3 categories based on the size and the turnover of the business 
  • MUDRA loans are re-financed loans that are provided to smaller banks and NBFCs 
  1. Credit Guarantee Fund Trust for Micro and Small Enterprises 

The credit guarantee fund or the CGTMSE is a one of a kind loan that is a collateral-free loan issued to small and medium enterprises. The loan can be issued to new businesses and entrepreneurs as well as old and existing ones. The loan amount sanctioned can be up to INR 2 crore and does have a preference for women entrepreneurs. 

Features of the Credit Guarantee Fund: 

  • Loans can be issued to new and existing enterprises and individuals 
  • They’re collateral-free loans that can be sanctioned to a limit of INR 2 crore that can be issued for term loans and working capital loans 
  • For MSME retail loans there is a 50% guarantee cover in the amount of default subject to a maximum of INR 50 lakhs. 
  1. Stand-Up India 

The Stand- Up India loan scheme was introduced specifically for the schedule caste and the schedule tribe communities who do not get the same amount of equality while conducting business. Women entrepreneurs are also given a special preference in the Stand-Up India Loan Schemes. The industries which can avail this loan should be in the sectors of manufacturing, trading and service industries. The loan amount ranges from a minimum of INR 10 lakhs to a maximum of INR 1 crore. 

Features of Stand-Up India: 

  • This loan can account for over 75% of the overall project plan, covering the working capital cost, machinery, other services, etc. 
  • This loan was especially introduced to cater to the schedule caste, schedule tribes and women entrepreneurs in the same communities. 
  • The Small Industries Development Bank of India controls the functioning and governing of this loan scheme. 
  1. SMILE – SIDBI Make in India Soft Loan Fund for MSMEs

A fairly new loan scheme that has been introduced in the economy. SMILE tends to aim at businesses that are looking to grow and expand their current running business. Initiated by the Small Industries Development Bank of India, SIDBI, the loan scheme aims to assist businesses in meeting their debt to equity ratio. 

Loans can be availed under soft loans and term loans depending on the business requirements and how the business can pay off the loan in the long run.

Features of SMILE:

  • The minimum loan amount under the SMILE Loan scheme is INR 25 lakhs. 
  • The loan has a repayment period of 10 years that need to be followed. 
  • As part of the loan scheme, 25 sectors will receive financial assistance at a reasonable interest rate under the SMILE scheme. 

What is the eligibility criteria for these loan schemes? 

Any registered business that comes under the category of micro, small and medium enterprises is eligible for availing a loan under these different schemes based on their requirements and capacity to pay back the loans. 

Any form of business partnership such as 

  • Sole Proprietary 
  • Individuals 
  • Limited Liability Partnership 
  • Private Ltd. Company 
  • Any other legal form of company 

Can avail loans from the schemes mentioned above. 

All these loans can be applied for via online portals through a digital application to make the process seamless and easy. This not only reduces the burden of paperwork on the entrepreneur but also increases the processing of the loans. Loans can be sanctioned much faster via an online route through the advancement of digital technology. 

Some of the loans can be repaid via two modes, that is 

  • A part of the interest + A part of the principal is paid every month in the form of EMI 
  • A part of the interest is paid in the form of EMI and principal is paid at the end of the loan tenure 

However, most of the loans are paid via the first option as it’s easier for the entrepreneur to take this route and the interest rate may also be lower in this case. 

To avail a business loan at a good interest rate it is imperative that the individual has a good credit score to back the credibility of the person and the business. 

Additional, there should be no default in the past, either in the name of the business or in the name of the entrepreneur.

Apart from this, all the other documentation should be in place such as the PAN Card, GST Registration, Bank documents, books of account etc. Once all this in place, the loan application needs to be filled online and that’s it!
You’ve to then just sit back, and wait for the approval and sanctioning of the loan.