The Micro, Small, & Medium Enterprises (MSMEs) contribute to 29% of India’s GDP, and are responsible for almost half of the nation’s exports. On the other hand, startups have been mushrooming across the country and are a massive contributor to taking India higher on the global pedestal. India has become the third-largest startup ecosystem in the world after the US and China. To help further the growth, the Government of India has introduced multiple loan schemes for MSMEs and startups in India. This blog post covers 10 MSME and startup business loans by the Government of India that you should know about.
Did you know that India has more than 7.9 million micro, small and medium enterprises (MSMEs) as of 27 March 2022, according to the Ministry of Micro, Small & Medium Enterprises?
Pradhan Mantri Mudra Yojana
Launched in 2015, the Pradhan Mantri Mudra Yojana (PMMY) initiative provides loans up to 10 lakh to non-corporate and non-farm small/micro enterprises. These loans are classified as MUDRA (Micro Units Development & Refinance Agency) loans under PMMY. These loans are lent by Commercial Banks, RRBs (Regional Rural Banks), Small Finance Banks, MFIs (Microfinance Institutions), and NBFCs (Non-Banking Financial Companies). In 2021-22, the scheme had 65,30,351 new entrepreneurs applying for loans. MUDRA has two types of funding:
- Micro Credit Scheme (Through MFIs)
- Refinance Scheme (For Commercial Banks / Regional Rural Banks (RRBs) / Small Finance Banks / Non-Banking Financial Companies)
The MUDRA loans are extended under the following three categories:
- Loans up to ` 50,000/- (Shishu)
- Loans from ` 50,001 to ` 5 lakh (Kishore)
- Loans from ` 5,00,001/- to ` 10 lakh (Tarun)
Bonus: For working capital limit, MUDRA has a product called “MUDRA Card,” which is a Debit card issued on RuPay platform which provides hassle-free credit, with flexibility.
Banks do not require collateral security in the case of loans up to 10 lakh extended to units in the Micro Small Enterprises (MSE) Sector.
Additionally, women entrepreneurs can get loans at discounted interest rates. As INR 10 lakh is the maximum funding allowed for the borrowers under this scheme, it works best for businesses with short-term needs.
The loans are availed mainly for:
- Business loans for vendors, traders, shopkeepers, and other service sector activities
- Working capital loan through MUDRA Cards
- Equipment Finance for Micro Units
- Transport vehicle loans – for commercial use only
- Loans for agri-allied non-farm income generating activities, e.g., pisciculture. beekeeping, poultry farming, etc.
The Government also launched a new web portal, i.e., PSB Loans in 59 Minutes, to provide Mudra and MSME loans in under 59 Minutes.
Stand Up India Scheme
Stand Up India Scheme is an initiative by the Government of India, launched in 2016, that facilitates bank loans between INR 10 lakh and one crore. The scheme is aimed at SC/ST or women entrepreneurs in the manufacturing, services, and trading sectors. Only greenfield enterprises are eligible to avail of this scheme. Greenfield enterprises here refer to first-time ventures in the manufacturing, services, or trading sectors. Under this scheme, 1.25 lakh bank branches nationwide would be expected to lend money yearly to at least one Dalit or tribal entrepreneur and one woman entrepreneur in their region.
Business loans through this scheme can be availed in three ways:
- Directly at a Bank Branch
- Through SIDBI Stand-Up India Portal (www.standupmitra.in)
- Through the Lead District Manager
The loan must be repaid within 7 years with a maximum moratorium period of 18 months. To avail of the loan under the Stand Up India scheme, the business must meet the following criteria:
- The individual must be 18 years older
- The company must be a private limited/LLP or a partnership firm
- The firm’s turnover must NOT be more than 25 crores
- The entrepreneur should either be a woman or a person belonging to a scheduled caste or scheduled tribe category
- The loan will only be provided to fund greenfield projects
- The applicant must not be a bank defaulter
- The company should be dealing with any commercial or innovative consumer goods
The applicants will also get an 80% rebate after filing the patent application form as a tax benefit.
Credit Guarantee Fund Scheme for Micro and Small Enterprises
Launched in 2000, the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) makes available collateral-free credit to the micro and small enterprise sector. The Ministry of MSMEs, and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. Educational and training institutions, self-help groups (shgs), and agriculture-related activities are not eligible for this scheme. Businesses with physical offices and assets like real estate and machinery can benefit significantly from the CGTMSE scheme by the Government of India.
Under the CGTMSE scheme, new and existing businesses can avail of collateral-free loans of up to Rs 10 lakh. For loans over Rs 10 lakh and up to Rs 1 crore, businesses can provide primary security or mortgage of land and buildings associated with the business.
The documents required for the CGTMSE are:
- CGTMSE loan application form with passport-sized photographs
- Company Registration Certificate
- Business Project Report
- CGTMSE Loan Coverage Letter
- Any other document required by the Bank
To cover the loan under the scheme, the borrower has to pay an additional guarantee fee, and service charge in addition to the interest charged by the bank. The fee payable to the Trust under the scheme is a one-time guarantee fee of 1.5% and an annual service fee of 0.75% on the credit facilities sanctioned. For loans up to Rs.5 lakh, the one-time guarantee fee and annual service fee are 1% and 0.5%, respectively. The guarantees approved as of FY 2022 stand at INR 56,172 crore.
Small Industries Development Bank of India
Formed in 1990, Small Industries Development Bank of India (SIDBI) is the apex regulatory body for the overall licensing and regulation of micro, small and medium enterprise finance companies in India. The main objective of SIDBI is to provide refinance facilities to banks and financial institutions, engage in term lending and working capital finance to industries, and serve as the principal financial institution in the MSME sector. Its promotion & development program focuses on rural enterprise promotion and entrepreneurship development.
It promotes employment-oriented industries, particularly semi-urban ones, to ensure higher job creation and check on urbanization. MSMEs can avail of loans in varying ranges as the loan amount is modified per the business requirements by SIDBI. The institution also has tie-ups with banks worldwide and can help get concessions over loans. Entrepreneurs can avail of loans up to INR 1 Crore without providing any security.
SIDBI typically offers three types of financial assistance:
- Direct finance: Working Capital Assistance, Term Loan Assistance, Foreign Currency Loan, Support against Receivables, equity support, Energy Saving scheme for the MSME sector, etc.
- Indirect finance: Refinance to PLIs (Primary Lending Institutions), comprising of banks, State Level Financial Institutions, etc.
- Microfinance: Term loans for MSMEs
Since SIDBI has multiple schemes for MSMEs and startup business loans, the eligibility criteria for each differs substantially.
Udyogini is a women-focused business loan scheme implemented by the Women Development Corporation for the welfare and development of Indian Women Entrepreneurs. Per this scheme, interest-free loans are provided to women from all sections of the society, without any discrimination. Udyogini Scheme is mainly offered by the Karnataka State Women’s Development Corporation (KSWDC), Punjab and Sind Bank, Saraswat Bank, and several other private and public sector banks and leading NBFCs.
The scheme can be availed by businesses engaged in the SSI sector, retailers, manufacturers, self-employed professionals, traders, etc. The eligibility criteria for availing of business loans under the Udyogini scheme are pretty straightforward:
- Business loans available for only Women Entrepreneurs
- Should not have defaulted on any past loan with any financial institution
- Applicant with good credit score and repayment capability
Though the eligibility criteria are simple, women-preneurs would still have to provide a few documents:
- Duly filled Application Form with passport-sized photographs
- Applicant’s Aadhaar Card, Birth Certificate
- Applicant’s Below Poverty Line (BPL) card & Ration Card
- Address and Income Proofs
- Caste Certificate, if applicable
- Copy of Bank passbook (account, bank and branch names, holder name, IFSC, and MICR)
- Any other document required by the bank/NBFC
However, remember that each lending institution would have different requirements and rules for availing business loans. For example, the Udyogini loan amount from Bajaj Finserv can be a maximum of INR 3,00,000, while that of Saraswat Bank goes up to INR 200 lakhs.
Coir Udyami Yojana
Launched in 2014, Coir Udyami Yojana (CUY) is a credit-linked subsidy scheme helping entrepreneurs set up coir manufacturing units in India. The scheme is a mix of subsidy and loan (40% subsidy and 55% loan), subject to the upfront contribution by the entrepreneur (5% of the project cost). The maximum amount that can be availed under this scheme is INR 10,00,000 plus working capital, which should not exceed 25% of the project cost.
The scheme grants loans to individuals (Only one person per family), NGOs (Non-Government Organization), Self Help Groups, Registered societies, Charitable trusts, and Joint Liability Groups. However, if the project has already availed subsidy under any other scheme of the Central Government or State Government, the project is not eligible for this scheme. Also, it must be noted that working capital is not considered for the purpose of the loan and subsidy.
The eligibility criteria for CUY are slightly different from the others we have discussed above. You will need to provide::
- Caste certificate
- In the case of applicants other than an individual, the certified copy of the by-laws of the organization has to be appended with the application
- Detailed business plan
- Identification proof and residential proof
- Appropriate registration documents
- Property documents of the proposed location for the coir manufacturing unit
- Proof of coir industry experience
- Certificate of EDP (Entrepreneurship Development Program) training
- Industrial establishment certificate (Issued by DIC)
- Plan and Estimate of civil construction work. The plan has to be certified by the Charter Engineer
The loan under Coir Udyami Yojana is covered through the CGTMSE scheme under the Ministry of MSME.
Bank Credit Facilitation Scheme
Started in 2014, the Bank Credit Facilitation Scheme provides micro, small, and medium enterprises with financial support through credit and assistance with documentation, filing, and submitting proposals to financial institutions. It also helps businesses avail of the loan easily at competitive interest rates. Under the scheme, you can also receive non-fund-based limits such as guarantees and letters of credit.
Small enterprises that require a quick, short-term loan for expanding and improvising their operations can use this scheme and avail of bank loans directly at low interest. The scheme also helps businesses receive help with applying for a new bank account or switching banks and transferring the account from one bank to another. Depending on the size of the startup and MSME, the amount that can be availed varies.
All registered businesses are eligible for a Bank Credit Facilitation Scheme, be it micro, small, or medium, as long as the enterprise ID is registered and recognized by the Government. The repayment time for the loan varies from 5 to 7 years (can be 11 years in exceptional cases).
For availing of loans through the Bank Credit Facilitation Scheme, any MSME or startup can approach the office of the NSIC branch. They must then submit their application at any of the banks where the applicant has an account. However, these banks must have a tie-up agreement with the NSIC, or one can apply at any bank registered under this scheme.
Sustainable Finance Scheme
Launched by SIDBI, the Sustainable Finance Scheme aims to provide funds for developing projects that help in energy efficiency and cleaner production. The prominent projects that are granted business loans under this scheme are eco-friendly labeling, green buildings, green microfinance, Bureau of Energy Efficiency (BEE) star rating, and renewable energy projects. With sustainable startups mushrooming across the country today, this is a great source of project funding. All entrepreneurs who are building the future of sustainable industries can apply for the scheme, be it waste management or biomass gasifier power plants.
Up to 90% of the project cost with a minimum of INR 10 lakh and a maximum loan amount not to exceed INR 150 lakh per eligible borrower can be availed under this scheme. The repayment period, including an initial moratorium period of up to 6 months, should not be more than three years for loans up to INR 50 lakh and six years for loans beyond INR 50 lakh.
The business should have undergone the process of Detailed Energy Audit (DEA) through a technical agency/consultants having BEE certified Energy Auditors. Further, the Detailed Project Report (DPR) prepared by the technical agency/consultant should have been vetted by the EEC at SIDBI.
Credit-Linked Capital Subsidy Scheme (CLCSS)
Launched in 2000, the Credit Linked Capital Subsidy Scheme is a financial scheme aimed at the growth and development of technology in small-scale industries in the rural and urban areas in the country. It provides a 15% capital subsidy for an investment of up to Rs 1 crore in eligible plants and machinery. Some major sectors under this scheme include Drugs and Pharmaceuticals, Biotech Industry, Food Processing, Cosmetics, and Khadi and Village Industries.
The documents required to avail this scheme are:
- Aadhar card / Voter ID / PAN card
- Address proof
- Business proof
- Recent photographs
- KYC documents
In 2021-22, a total of 1800 businesses leveraged this scheme and availed a net total of INR 106.63 crores. The scheme can be especially beneficial for manufacturing enterprises, fabrication units, and other small businesses which use machines and equipment.
National Bank for Agriculture and Rural Development
Formed in 1982, National Bank for Agriculture and Rural Development (NABARD) is an apex regulatory body for the overall regulation of regional rural banks and apex cooperative banks in India. It has been instrumental in grounding rural social innovations and social enterprises in the country’s rural areas. Additionally, it also takes measures towards institution building for improving the absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
NABARD provides Long Term and Medium Term Refinance to banks to provide adequate credit to farmers and rural artisans. NABARD Scheme is also responsible for developing cottage industries and rural and village projects. Additionally, it also specializes in providing long-term irrigation and rural infrastructure development funds. Remember, the NABARD loan is not offered directly; you need to apply for a business loan with any commercial or cooperative bank to avail of a subsidy under the NABARD scheme.
How To Register For Government Loan Schemes?
Applying for the MSME and startup business loans provided by the Government of India is very similar to other loans. There are two ways to go about it:
- You can visit the lender’s website and fill in the online application form. You will be required to submit all necessary documents either online or offline, depending on the lender’s rules.
- You can visit the lender’s offline/physical branch and fill out their application form and the required documents.
Common Eligibility Criteria to Register for a Startup Business Loan by The Government of India
In addition to the specific eligibility criteria for each lender, there are a few common eligibility requirements that MSMEs and startups looking for business loans need to fulfill. These are:
- The company should not be older than five years in the case of existing enterprises
- The total turnover of the business should not be more than INR 25 crores
- Only Limited Liability Partnerships or Private Limited companies are eligible for these loans
- Eligible applicants should also have approval for DIPP (Department of Industrial Policy and Promotion)
- A patron guarantee from the Indian Patent and Trademark Office is a must to qualify for Government startup loans
Factors Affecting the Eligibility of a Startup for Government Loan Scheme
While sanctioning business loans is at the discretion of the financial institutions, some factors significantly affect your chances of availing the business loan. Below, we have summed up five of the most vital factors you need to know:
Type of business: The type of business you are seeking a loan for can be a critical factor in getting that business loan. Some businesses tend to be riskier than others, so the banks may be wary about lending loans to such businesses.
Profitability: Your profitability can directly affect how much loan you get. Hence, many financial institutions even have minimum turnover eligibility for sanctioning loans. Higher your profitability, the higher your chances of getting a business loan.
Credit history: Banks and other financial institutions mentioned above give out loans only if they are sure the entrepreneur has the capacity to repay the loan. In most cases, this is ascertained through the CIBIL score. Having a higher CIBIL score can help you get that business loan.
Business plan: Often, businesses that fail to draft a solid business plan are at the losing end of a loan sanction. Having a properly written business plan, with plans on how the loan would be utilized, can help move the decision in the business’s favor.
Documents: As with any kind of loan, availing of business loans successfully depends on the documents the business would submit to the lending institution. Ensure you have all the required documents before approaching the institution for the loan.
A Few Common Documents Required to Apply for a Startup Business Loan By The Government of India
If you’re wondering what documents would be required to apply for a startup business loan by the Government of India, we have got you covered. Here is a list of the documents you would need:
|Photographs||Two copies (passport-size)|
|Proof of Identity||PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License|
|Address Proof||Passport, Driving License, Aadhaar Card, Postpaid Phone Bill, Voter’s ID|
|Age Proof||Passport, PAN Card|
|Bank Statements||Last six months|
|Proof of Income||Income Tax Returns, Salary Slips,|
|Signature Proof||Bank verified signature, PAN Card, Passport|
|IFSC Code Proof||Canceled/scanned cheque, copy of passbook’s front page of the same bank account|
Remember, the lenders might also ask for other documents per their own rules and regulations.
If you think availing startup business loans from the Government of India is daunting, we can help. We recommend revenue-based financing, if you want a flexible, highly scalable, 100% digital fundraising process. This founder-friendly approach lets founders raise funds without diluting equity or providing collateral, and the repayments happen as a percentage of monthly revenue.