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Often budding entrepreneurs who are currently unemployed stumble upon a usual problem of funding their business. Many good business ideas do not see the light of day due to a lack of funds. However, there are ways the unemployed can get a loan.

Can the unemployed obtain a business loan?

Usually, it is difficult for the unemployed to secure a business loan to start their venture. This is because the creditworthiness of the unemployed is much lower due to the lack of any steady income. Having said this, there are a few options such as government business loans and secured loans that employed can explore. Here is more about it.

Government business loan for unemployed

The government of India encourages the unemployed to start their businesses in several ways. Offering business loans to aspiring entrepreneurs is one such way. Here are some of the popular business loan schemes initiated by the government for unemployed yet aspiring entrepreneurs.

1. Pradhan Mantri Rozgar Yojana (PMRY)

The PMRY scheme aims at creating employment and earning opportunities for youth. The scheme aids them with financial support for kickstarting a business. Here are some of the key features of the scheme.

  • Loan amount: The PMRY scheme offers business loans of up to ₹1 lakh to the unemployed.
  • Collateral: No collateral is required for the loan under the PMRY scheme.
  • Interest rate: The loan is provided under the prevailing rates. Currently, the rate of interest on business loans ranges between 10%-22%.
  • Repayment period: The loan repayment period is 3 to 7 years after the initial moratorium period.

Eligible business activities: All business activities including manufacturing, service and trading are eligible. However, direct agriculture related business activities are not eligible.

Eligibility criteria for the PMRY scheme

  • The employment status of the applicant should be unemployed.
  • The age of the borrower should be between 18-35 years. However, the age limit for SC/ST and women entrepreneurs is relaxed to 45 years.
  • The minimum education qualification should be an 8th
  • Family income should not be more than ₹40,000.

To apply: You can easily apply for a business loan under the PMRY scheme by visiting the portal at

Documents required for the PMRY scheme

  • Proof of date of birth
  • Educational qualification certificate
  • Proof of residence address
  • Income certificate issued by Mandal Revenue Officer (MRO)
  • Caste certificate from MRO (if applicable)

2. Prime Minister’s Employment Generation Programme (PMEGP)

The PMEGP scheme is a credit-linked subsidy programme and aims at generating employment opportunities for the unemployed. The scheme encourages unemployed youth to establish businesses in the rural and urban areas. Here is how it works:

Applicant’s contribution (of project cost) Rate of subsidy in urban areas Rate of subsidy in rural areas Loan amount
10% 15% 25% The balance amount of the total project cost will be provided by banks as term loans.


Eligibility criteria under PMEGP for setting up new units

  • Applicant should be 18 years of age.
  • For setting up of projects costing above ₹10 lakh in the manufacturing sector and above ₹5 lakh in the service sector, the beneficiaries should possess at least VIII standard pass educational qualification.
  • Projects without capital expenditure are not eligible for the PMEGP loan scheme.
  • Eligible business activities include:
  • Trading activities with sales outlets.
  • Retail outlets selling Khadi products institutions certified by KVIC.
  • Retail outlets that are backed by manufacturing facilities.
  • Transport activities such as purchase of CabNan/Boat/Motorboat/Shikara etc., for transportation of tourists or public.

Documents required for the PMEGP scheme

Here are some of the important documents required while applying for the PMEGP scheme.

  • Educational qualification certificate
  • Detailed project report
  • Special category certificate, if applicable
  • Rural area certificate if applicable

Types of business loans the unemployed can avail

So apart from the schemes mentioned above, what are the other loan options available for the unemployed? Here are some of the loan options you can explore:

Secured loan

Candidates having no steady income can apply for a secured or collateral loan. The collateral acts as a security for the lending institute. In other words, collateral enhances your eligibility even if you are unemployed or have a low CIBIL score. Here are some of the types of secured loans you can avail of:

  • Loan against property: You can avail of a business loan as high as 90% of the property value as the loan amount. Many banks and NBFCs offer loans against property. However, the rate of interest differs. To get the best interest rate on a loan against property, you can apply through Tata nexarc. The advantage of Tata nexarc Finance is a single application works for multiple lenders. Lending institutes then revert with their loan offering, you can select the offer that suits you the best. Apply now.
  • Loan against mutual funds: f you have a well-built portfolio in mutual funds, it can help you to avail loan despite unemployment. Instead of liquidating your investment, you can continue to gain interest from your funds while you promise them as collateral. You can get a loan amount of up to 50%-80%. However, not all banks offer loans against mutual funds to the unemployed. You will need to enquire with your bank about the eligibility.
  • Loan against FD: This is yet another collateral loan you can opt for. It follows the same pattern as the loan against mutual funds. In other words, you do not have to break your investment prematurely and continue gaining interest rates as you promise it as collateral. On a fixed deposit, you can get a loan of up to 90% of your FD amount.

Concluding remarks

Usually, it is not easy for the unemployed to obtain a business loan. Therefore, it is best to take advantage of the available government schemes. Alternatively, you can apply for a business loan promising your asset.

Business Loan

Swati Deshpande

Swati is a passionate content writer with more than 10 years of experience crafting content for the business and manufacturing sectors, and helping MSMEs (Micro, Small and Medium Enterprises) navigate complexities in steel procurement, and business services. Her clear and informative writing empowers MSMEs to make informed decisions and thrive in the competitive landscape.