Presently, India is the second-fastest-growing economy in the world. Small and medium enterprises (SMEs) form the backbone of our economy, producing 45% of the industrial output and 40% of total exports. However, they struggle to find adequate credit at a reasonable cost. The Government of India (GOI) acknowledges this issue and provides several government business loans to facilitate the credit to small companies.
Many startups have the funds to begin operations but as business grows, they need financial assistance to give their business a boost. The most common credit requirements for small businesses are:
- Working capital loans for bridging gaps in cash flow
- Term loan requirement for capital purchases, such as land or buildings
- Equipment financing for procurement or up-gradation of machinery
Banks can be reluctant in lending to small businesses given the high risk involved, and often request for collateral security. However, budding entrepreneurs don’t often have property or other possessions valuable enough to secure bank loans.
In this article, we will discuss seven government schemes that help small businesses in getting credit.
Related: Here is how to find a machinery loan
You could find your loan in one of these 7 programs
If you need a loan to start or grow your small business, you’ve come to the right place. Here are 7 great options:
- The Credit Guarantee Fund Scheme for Micro and Small Enterprises.
- Small business loan in 59 minutes.
- Micro Units Development and Refinance Agency (MUDRA).
- Credit Linked Capital Subsidy Scheme (CLCSS) for technology up-gradation.
- Stand-up India scheme for protected groups.
- National Small Industries Corporation (NSIC) schemes.
- Pradhan Mantri Kisan SAMPADA Yojana (PMKSY).
Scan the list below, then click through for details on any scheme that seems right.
1. The Credit Guarantee Fund Scheme for Micro and Small Enterprises
To facilitate quick and easy credit to small and micro businesses, the Ministry of Micro Small and Medium Enterprises and the Small Industries Development Bank of India (SIDBI) have established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
The trust covers up to 75% of the loan allowed under the CGTMSE scheme, up to a maximum limit.
Business owners can avail both working capital as well as term loan facility under this scheme. Consult the link provided above for complete details.
2. Small business loan in 59 minutes
PSB loans in 59 minutes is an online portal launched by the Government of India in 2018 to provide quick in-principle loan approvals to micro, small and medium enterprises. Around 19 public sector and private banks partner in this initiative and evaluate the loan proposals based on several data points.
The borrower can submit all the information and documents on the online portal and receive the initial approval from the preferred bank in less than one hour. The borrower will then approach the designated branch to process the loan application further and get the loan disbursed.
3. Micro Units Development and Refinance Agency (MUDRA)
These government business loans are given by commercial banks, small finance banks and various other non-banking financial companies.
Pradhan Mantri MUDRA Yojana offers loans to non-corporate, non-farm small/micro-enterprises.
MUDRA loans are classified under three categories — Shishu, Kishore and Tarun — according to the size of the loans disbursed. Shishu offers the smallest loans, while Tarun provides the largest loans.
MUDRA loans are extended for various purposes and can be availed from the closest branch of partner banks. Now, borrowers can also apply online for MUDRA loans on the Udyamimitra portal.
4. Credit Linked Capital Subsidy Scheme (CLCSS) for technology up-gradation
Technology is an essential part of any successful business. But many small startups cannot afford state-of-the-art manufacturing plants and machinery. Therefore, the Ministry of Small Scale Industries has introduced this government business loan scheme. CLCSS offers a 15% capital subsidy to small-scale industries for technology up-gradation.
The list of industries that can benefit from this scheme and maximum loan amounts are available on the website of the ministry.
5. Stand-up India scheme for protected groups
This government small business loan was launched on 5 April 2016 to encourage the spirit of entrepreneurship in:
- Members of scheduled caste (SC)
- Members of scheduled Tribes (ST)
As per the scheme, the eligible candidates can avail bank loans for setting up an enterprise from scratch in the manufacturing, trading or service sector. Check the link above for details.
6. National Small Industries Corporation (NSIC) schemes
NSIC through its various programs and schemes provides financial assistance to micro, small and medium enterprises. Some important NSIC services are:
Raw Material Assistance loans
This scheme helps small businesses to finance the purchase of raw materials. The scheme also helps them in getting bulk orders and cash discounts from the suppliers.
Help with loan applications
NSIC also facilitates credit to small companies from their partner banks. It helps the companies in completing the documentation and also does the follow up with banks on the loan applications.
7. Pradhan Mantri Kisan SAMPADA Yojana (PMKSY)
This scheme provides a boost to food processing plants, food parks, cold chain and warehouses.
Click the PMKSY link above for details on:
- Mega Food Parks
- Integrated Cold Chain and Value Addition Infrastructure
- Creation/ Expansion of Food Processing/ Preservation Capacities (Unit Scheme)
- Infrastructure for Agro-processing Clusters
- Creation of Backward and Forward Linkages
- Food Safety and Quality
As you can see, the GoI is serious about fuelling the growth of the Indian economy by making it easier for small ventures to get credit.
There is likely a government business loan for you
With so many government business loan schemes available, it is apparent that the government is making all the efforts to boost small and medium businesses in India.
The availability of timely finances is the biggest challenge for small and micro business owners today. With all the options mentioned in the article, capital should not be a constraint for your business’s growth now. Find your right loan and fly!
Information was accurate as of publication date. Please consult websites linked above for current rates and terms.