What is the government loan scheme for small business?

The wind beneath your wings

According to an Oxford Economics research briefing, India will be the fastest growing major economy over the next decade. Small-scale Indian businesses act as the pillar of this growth by supporting employment and economic development of the country. To boost the sector, the government offers various government loans for small business in India.

These loans can be availed by businesses to:

In this article, we will discuss in detail five types of government loans for small business in India.

5 government loans for small business in India

Here are the top five government loan schemes offered by Government of India (GoI) for small businesses:

  1. The Credit Guarantee Fund scheme.
  2. Small business loans in 59 minutes.
  3. Micro Units Development and Refinance Agency.
  4. Credit Link Capital Subsidy scheme for technology upgradation.
  5. Stand-Up India scheme.

Whether you’re just starting a business or need funds to grow, consider one of these loans.

1. The Credit Guarantee Fund scheme

Government Loan Scheme Woman in Market

Small businesses face two major concerns while availing business loans:

The Credit Guarantee Fund Scheme for Micro and Small Enterprises was launched by the GoI in the year 2000 to address both of the above-mentioned issues.

This scheme is well-suited for businesses that don’t own high-value assets (land, buildings, etc).

Under this scheme, small businesses are eligible for both working capital and term loans of up to Rs. 1 crore. The scheme extends collateral-free credit to the small and micro businesses (one to two employees).

The business loans under this scheme are financed by different public and private sector banks. The scheme covers both existing as well as new enterprises.

2. Small business loans in 59 minutes

Government Loan Scheme PSB Loans
On this website, business owners can be approved for loans within 59 minutes.

In 2018, Government of India enabled a website that allows micro, small and medium enterprises (MSME) to get approval of loans in only 59 minutes.

It generally takes eight to 10 working days from the day of submission of the required documents to receive the loan funds.

This GoI initiative saves small businesses from the:

  • Lengthy approval processes of banks
  • Complicated documentation
  • Frequent visits to lenders’ offices

There is also no mandatory requirement for any collateral.

3. Micro Units Development and Refinance Agency (MUDRA)

MUDRA is a non-banking financial company that supports the growth of small and micro businesses in India.

This scheme is open to traders, shopkeepers, service businesses and those seeking equipment and vehicle financing.

MUDRA loans are structured under the name of ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth and funding needs of the borrower. Loans range from Rs. 50,000 all the way up to Rs. 10 lakh (check current levels here).

MUDRA funds banks and other institutions that provide loans to small businesses. While it doesn’t lend directly, it encourages other lenders to provide loans to small businesses (by way of refinancing).

4. Credit Link Capital Subsidy scheme for technology upgradation (CLCSS)

Government Loan Scheme Man

This scheme is governed by the Ministry of Small Scale Industries. CLCSS enables technology upgradation through up-front subsidies of 15% to eligible businesses.

Businesses need technological upgradation for:

  • Improved efficiency
  • Better quality of the product
  • Improved environmental conditions (including working environment)

Loans are granted in cases where the new technology is a significant step up from the present technology.

At the time of this writing, the maximum loan under this scheme is Rs. 1 crore. Accordingly, the eligible plant and machinery can avail a subsidy of a maximum of Rs. 15 lakhs.

The eligible beneficiaries under the scheme include sole proprietors, partnerships, cooperatives, as well as private and public limited companies.

5. Stand-Up India scheme

Government Loan Scheme Stand Up India
This benefits businesses owned by women and Scheduled Caste/Scheduled Tribe members.

Through Stand Up India scheme, GoI aims to encourage bank loans to at least one:

  • Scheduled Caste (SC) or Scheduled Tribe (ST) borrower per bank branch
  • Woman borrower per bank branch

In the case of non-individual enterprises, at least 51% of the shareholding and controlling stake should be held by either an SC/ST or woman entrepreneur.

The purpose of this loan is to support greenfield projects in the manufacturing, trading or service sectors.

You can apply for the loan directly on the Stand Up India portal, through any branch of Scheduled Commercial Banks or through your lead district manager.

Government loan schemes can be availed by all

Many big businesses today were once small and ultimately got nurtured into the mammoth companies that they are today.

Government of India understands the importance of emerging businesses and their challenges in raising the required finances. Therefore, the GoI is making all efforts to provide hassle-free government loans for small business in India.

With a supportive government and so many loan scheme options available, finance should not be a reason for you to stop. These loan schemes are definitely the wind beneath your wings. Explore the best government loan scheme for your business and focus on the growth of your business.

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