A Guide to the Top 5 Government Loan Schemes in India

If you are a small business looking for a government loan it is important to know that there are many MSME government loan schemes floated by the Government of India. These are loans that are offered at low interest rates compared to the informal loans. There are two main types of government loan schemes for small businesses in India, working capital loans and term loans.

• Working capital loans are offered to help small businesses meet their daily expenses. These loans cover expenses like transport, phone connectivity, electricity backup, etc.
• Term loans are fixed loans for specific capital needs of small businesses.  Purchase of new machinery, raw materials, land and fixed assets are covered under this loan.

Depending on your requirement you can apply either for a term loan or a working capital loan.

While term loan and working capital loans are fund-based loans, there are also non-fund-based loans such as Letter of Credit and Bank Guarantee.

Since there are multiple government subsidy loan schemes for businesses, you should know the type of each loan before selecting one. It is also important to check through the benefits offered by each loan and the eligibility criteria. It is also recommended that you register your business and benefit from the Udyam MSME portal.

5 government loan schemes for small businesses in India

Realising the importance of MSME contribution to the economy, the government has floated many easily available small business loans. These also include MSME loans for new businesses to promote startups in the country.  There are a few business loans that are known for easy availability and benefits among MSMEs. Have a look at government loan schemes for 2022 that small businesses in India can consider:

1.    Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme was introduced by the government in the year 2000 to boost the flow of credit to the MSME sector. This fund was started to also support the first-generation entrepreneurs to realise their dream of setting up a unit. CGTMSE provides a guarantee cover to loans taken by MSMEs from financial institutions. This means that if you default on your loan, the government will help you pay a major part of your loan repayment amount.

Under this scheme, the government will provide guarantee covers for loan amounts up to ₹ 200 lakh. The amount that will be offered as the cover will depend on the loan principal and the category of the MSME company. Given below are the details of the percentage of maximum credit guarantee extended to different categories of MSME establishments according to the principal loan amount.

• Micro enterprises who have borrowed up to ₹ 5 Lakh – 85% of the amount in default subject to a maximum of ₹ 4.25 Lakh.
• Micro enterprises who have borrowed between ₹ 5 Lakh and ₹ 50 Lakh – 75% of the amount in default subject to a maximum of ₹ 37.50 Lakh
• Micro enterprises who have borrowed between ₹ 50 Lakh and ₹ 200 Lakh – 75% of the amount in default subject to a maximum of ₹ 150 Lakh
•  Women entrepreneurs/units located in northeast region who have borrowed between ₹ 5 Lakh and ₹ 50 Lakh – 80% of the amount in default subject to a maximum of ₹ 40 Lakh
• Women entrepreneurs/units located in northeast region who have borrowed between ₹ 50 Lakh and ₹ 200 Lakh – 75% of the amount in default subject to a maximum of ₹ 150 Lakh
• All other category of borrowers who have borrowed between ₹ 5 Lakh and Rs 50 Lakh – 75% of the amount in default subject to a maximum of ₹ 37.50 Lakh
• All other category of borrowers who have borrowed between ₹ 50 Lakh and ₹ 200 Lakh – 75% of the amount in default subject to a maximum of ₹ 150 Lakh

Eligibility: MSMEs involved in manufacturing and services including retail trade.

2. MUDRA (Micro Units Development & Refinance Agency Ltd) loan

MUDRA loan scheme is a program under the Pradhan Mantri MUDRA Yojana (PMMY) to provide loans up to ₹ 10 Lakh to the non-corporate and non-farm small/micro enterprises. The scheme has three types of products under it namely ‘Shishu’, ‘Kishore’ and ‘Tarun’. The names of these loan products signify the stage of growth and funding needs of the business unit. No collateral is required to apply for this Pradhan Mantri business loan.

Here are the three types of Mudra loans you can apply for:

• Shishu: Loans sanctions up to ₹ 50,000
• Kishore: Loans sanctions from ₹ 50,001 to ₹ 5 Lakhs
• Tarun: Loans sanctions from ₹ 5,00,001 to ₹ 10 Lakhs

Eligibility: MSMEs engaged in manufacturing, trading and services including allied agricultural activities.

3. PSB Loan in 59 minutes

PSBLoansin59Minutes is a business loan portal that helps businesses get loans approved within 59 minutes. This government loan scheme for new businesses and MSMEs covers business loans and retail loans. Business loans include term loans, working capital loans and mudra loans while retail loans include personal loans, home loans and auto loans.

No collateral is required to apply for loans under this portal. You can avail loans ranging from ₹ 1 Lakh to ₹ 5 Crore from public and private sector banks and NBFCs from the portal. Loan applicants can pick a financial institution of their choice to apply for the loan.

The special feature of the loan is the almost instantaneous approval of a loan. While the approval is done in an hour’s time, the time taken for loan disbursement depends on the information and documentation provided.

Eligibility: Any existing businesses that are IT compliant.

4.    Credit Linked Capital Subsidy Scheme (CLCSS)

Credit Linked Capital Subsidy Scheme (CLCSS) aims to subsidise the upgrades to technology undertaken by MSMEs and help new businesses set up their manufacturing facilities. MSMEs can get a capital subsidy of 15% to upgrade their plant and machinery with state-of-the-art technology. The subsidy can be an amount up to ₹1 Crore. Businesses can apply through the primary lending institutions from which they are taking the loan to fund the technology upgrade.

Eligibility: All MSMEs upgrading plant and machinery included in the approved list of equipment can apply.

5. Stand-Up India scheme

This scheme was introduced by the Government of India to extend government loan scheme for women and SC/ST entrepreneurs. This program can be considered as a start-up business loan by the Indian government for women and SC/ST entrepreneurs looking to set greenfield enterprises. You can avail term loans and working capital loans ranging from ₹ 10 Lakh to ₹ 100 Lakh under this scheme. There are a list of banks offering loans under the Stand-Up India scheme including State Bank of India and Indian Bank. If the entrepreneur is part of a non-individual enterprise, then he/she should hold 51% of the shares to apply for the loan.

Eligibility: Women and SC/ST entrepreneurs above 18 years old can apply

Why should you apply for a government loan scheme?

There are many advantages of choosing a government business loan scheme. These schemes are tailored to small businesses to reduce their difficulties while applying for credit.

Here are a few pros of availing business loan schemes from the government:

• Lower interest rates
• Convenient repayment period
• Tax benefits
• No collateral is required for some loan schemes

There are also private sector entities that offer business loans that require less documentation. These are online business loans that can be easily accessed in a short time. All this process requires is accurate documentation. Platforms like Tata nexarc can help you find collateral-free business loans offered by leading banks and financial institutions in India.