Top 5 Government Loan Schemes for Small Businesses in India

Government business loans aim at enhancing the cash flow in the MSME Sector to promote and develop this sector, thus benefitting the society and the economy of the nation at large. These loans thrive on commercializing and marketing new ideas, innovative ventures, and developing small-scale industries by providing funds. They offer customised loan schemes to improve the working of SMEs and MSMEs and meet the financial needs of businessmen.

Objectives of Government Loan Schemes

The focus of Government Loan Schemes is mainly to follow these four main objectives:

• Development of the MSME Sector

• Promotion of workability of the organization and customer service

• Coordination and Control

• Financing and providing various kinds of customized business loans to give monetary assistance to MSMEs to grow.

List of Government Business Loans available to SMEs

SME means industries in India that are small or medium enterprises that contribute significantly to the economy of the nation. There are multiple schemes that the government has come up with. Collateral-free loans are offered to finance SMEs without mortgaging a guarantee. There are certain loans available to SMEs without collateral for running small businesses like:

1. MUDRA loans – Micro Unit Development and Refinance Agency – which is further divided into three categories:

a. Shishu Loan – Loan up to Rs. 50000

b. Kishore Loans – Rs. 50000 to Rs. 5 lakhs with different rates of interest

c. Tarun Loans – Loan allowed up to Rs. 10 lakhs.

Purpose of Mudra Loan

Mudra loan can be availed to perform various functions like:

  • Purchase of commercial transport vehicles like e-rickshaws, rickshaws, trollies, tractors, taxis, auto-rickshaws, etc.
  • Growing small-scale businesses like salons, gyms, medicine shops, tailoring shops, dry cleaning, repair shops, and photocopying shops, etc.
  • Various activities involved in Food and Textile Sector 
  • Business activities for Traders and Shopkeepers
  • Maximum loan up to Rs. 10 lakhs for Equipment Finance Scheme for Micro Units
  • Activities that are related to businesses in agribusiness centers, like pisciculture, poultry, pisciculture, beekeeping, livestock-rearing, sorting, diary, fishery, etc.

Benefits of Mudra Loan Scheme

  • Mudra loans are majorly offered to people engaged in trading, manufacturing or shopkeepers and general MSMEs.
  • Mudra loans are covered under Credit Guarantee Schemes from the Government of India
  • The loan amount availed can be used as overdraft facilities and term loans 
  • All non-farm enterprises can avail of Mudra loan
  • Mudra loan can also be availed via Mudra cards 

2. CGTMSE –

Ministry of Micro, Small & Medium Enterprises (MSME) launched the Credit Guarantee Scheme (CGS) to improve credit flow to the MSE sector under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This scheme helps the guarantee to cover the part of the credit that’s not covered by collateral security up to a maximum of 200 lakh. It allows the borrowers to get both term loans and working capital loan facilities from the same agency based on the primary security. If an MSE unit fails to repay the loan, the Credit Guarantee Scheme would bear the losses incurred by the lender up to 50/75/80/85 per cent of the credit facility.

The procedure for getting a loan under CGTMSE is as follows:

Formation of the Business Entity: Before taking a loan, the SME must incorporate a one-person company, limited liability partnership, private limited company, or a proprietorship as per the business and get appropriate approvals and registrations of tax.

Business Plan: SMEs must conduct a market analysis and make a business plan with relevant information about the business. If the report is created by experienced professionals, they have a better chance of acquiring approval.

The sanction for Bank Loan: After the application and business plan are under process, banks conduct a thorough analysis of the business plan and conduct a proper verification. After that, approval is given on the loan application as per the bank’s policy.

Obtaining the Guarantee Cover: After the loan is sanctioned, the bank applies to CGTMSE authority and obtains the guarantee cover. If the loan is approved by CGTMSE, the borrower will have to pay the guarantee fee and service charges.

3. NSIC Subsidy – This subsidy is available to SMEs for the procurement of Raw material and Marketing of products. They are easily available to SMEs who wish to grow and develop their existing businesses. This will help them procure raw material and enhance their competitiveness.

Schemes under NSIC:

NSIC has various schemes:

•              Bank Credit Facilitation – NSIC collaborates with various top banks in India, both public and private, to facilitate the MSMEs with credit support to meet their capital and financial needs and to help with the documentation.

•              Raw Material Assistance Scheme – This is a beneficial scheme for MSMEs in the manufacturing unit and has the benefit of the UAM – Udyog Aadhar Memorandum. They have the leverage to take a customized high-value loan up to Rs. 15 crores for acquiring the raw material.

•              MSME Global Mart – B2B Web Portal – Under this scheme, NSIC offers infomediary services providing vital statistical data and information on business and technology exhibiting the competence of the MSMEs. It provides information on the following topics:

·         Tenders on a national level on email

·         Trust seal of NSIC

·         The web store of MSMEs

·         MSME interactive database

·         National Tender

·         Centralized emailing system

·         Popular products

·         LIVE chat and call centre support

·         Discussion forums

·         Payment Gateway

·         Membership subscription

·         Other Value-add services

•              Single Point Registration Scheme – Launched in 1976, MSMEs make government purchases via a one-point registration process.

•              Consortia and Tender Marketing – A consortium is created to promote small-scale products and goods of micro and small-scale entrepreneurs.

•              Marketing Intelligence Scheme – This helps in understanding the current market scenario and understanding the demand, needs, behaviours, preferences, attitudes, and tastes of the potential customers.

•              Technology Incubation – Under the PPP mode – Public-Private-Partnership, NSICs have set up training and incubation centres – NSIC-TIC by initiating franchisee agreements and arrangements with private entities at various locations in the country.

•              Government Schemes under NSIC – Specially designed for the SC/ST group to help them start-up or develop their businesses.

•              ASPIRE Scheme– This addresses employment, the standard of living, and the livelihood of the public of India, in a scenario where the country’s population is growing by leaps and bounds.

•              International Cooperation and Consultancy Services – This works on sustainable business relations and aims to strengthen international business ties by offering consultancy to other developing countries.

4. CLCSS for Technological Upgradation – A capital subsidy of up to 15% for eligible business with a maximum limit of Rs. 15000 under the Credit Link Capital Subsidy Scheme specifically designed for the up gradation of the existing technology and to be in sync with the modern running of businesses using the latest technology.

The main goal of this scheme is to enable MSMEs (having a valid UAM Number) to upgrade their technology by facilitating them with a capital subsidy of 15% up to Rs. 1 crore. The following is included in the up-gradation profile:

  • There are 51 sub-sectors and products that have been approved as well-established products of technology. List available on its official website.
  • Upgrading to state-of-the-art technology
  • Updating Plant and Machinery
  • For new and existing MSMEs.

To apply for this scheme, the MSMEs need to apply online, the way they can apply for term loans, through PLIs. The application is forwarded by the PLIs to the Nodal Agency which in turn, after thorough verification and approval, will further send it to the DC office (MSME Level) for releasing the subsidy.

After approval, The Competent Authority releases funds to the Nodal Agencies which are transferred to the accounts of the MSE through PLIs.

5. Public and Private sector banks, International Banks, NBFCs, Regional Banks, and Small Finance Banks which provide government loan schemes to SMEs without collateral. There are several government schemes that help small businesses by offering financial help in the form of business loans. You must analyse all the options before you choose the ideal scheme depending on your requirements.  

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