5 Government Business Loan Schemes in India

Oct 12, 2020Business Loan

An economy's growth depends on its MSMEs (Micro, Small and Medium  Enterprises). MSMEs always provide a remedial solution to the significant economic problems such as poverty, unemployment, income inequality, regional imbalances and so on. Its vital role ensures a balance in local development, and income equality. This industry is responsible for providing employment to millions of people in our country, and the harnessing of local talent which in turn plays a pivotal role in contributing to the GDP of the country. 

At present, the MSME sector is responsible for creating around 11.10 crore jobs across the country. That’s why this sector is also known as India’s engine of growth. MSMEs contribute to 8% of the overall GDP, around 40% of the total exports, and 45% of the country’s manufacturing output comes from this sector. 

MSMEs are part of  the organized as well as the unorganized sectors.  Yet, like all fledgling businesses, an MSME entity faces a lot of hurdles to get the right kind of financial support for various activities including, obtaining infrastructure to support existing business activities or for business expansion.

1. MSME Loan in 59 Minutes

This scheme, also known as PSB Loan in 59 minutes, launched by the Government of India in which introduced a quick business loan portal for the individuals who need to expand their existing business. 

Must Read: Everything You Need to Know about Business Loan

Under this scheme, MSMEs can get loan amounts from INR 1 lakh to INR 5 crores in less than 59 minutes at an interest rate of 8.50% from public and private sector banks and NBFCs (Non-Banking financial companies). MSME/PSB Loans in 59 minutes provides you with the required financial resources in the stipulated time and pretty quickly. 

Which business/enterprise is eligible for his loan scheme? So there are some factors which determine the eligibility of business:

  1. Income/Revenue
  2. Repayment capacity of the borrower 
  3. Existing credit facilities
  4. Other factors set by the financial lender.

There are other benefits to this scheme as well; 

  1. The entire loan process expects to be duper quick and too, with minimal documentation.
  2. The loan processes without human intervention until the last stage of the loan sanction. That is why it is an Advanced Technology Backed Loans scheme.
  3. The loan process always needs a lot of safety and security of applicants details. So, considered this issue, the entire data of the applicant keep safe and secure with the highest level of security

2. Pradhan Mantri MUDRA Yojana (PMMY)

MUDRA stands for Micro Units Development and Refinance Agency Ltd.

MUDRA provides refinancing support to Banks and NBFCs for lending to Micro units having loan requirements up to INR 10 lakhs under the scheme of Pradhan Mantri MUDRA Yojana. Under PMMY, MUDRA divided the loan into three categories as ‘Shishu’, ‘Kishore’ and ‘Tarun’ to signify the stage of growth/development.

Loan Type

Coverage

Rate of Interest

Shishu

Covering loans up to Rs, 50,000

@ 1% to 12% per annum

Kishore

Covering loans above Rs. 50,000 and up to Rs 5 lakh

@ 8.60% to 11.15% per annum

Tarun

Covering loans above Rs. 5 lakh and up to Rs. 10 lakh

@ 11.15% to 20% per annum

Presently, the purpose of Mudra Loan is not to develop small units but it is offered as a;

  1. Business loan for the vendors, traders, shopkeeper and other service activities. 
  2. A working capital loan through Mudra card;
  3. Loan for tractors, two-wheeler, or another Transport vehicle (only for commercial use)
  4. Equipment finance for micro-units.

Against the Mudra loan amount, it issues a MUDRA Card (as a debit card). Borrowers can use it for multiple withdrawal and credit facilities so that they can manage the working capital limit efficiently and keep the interest burden minimum. Mudra cards also help in digitalization of all Mudra transactions and keep a record of borrower’s credit history.

3. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)

CGFMSE is a Government business loan scheme launched by the Government of India (‘GOI’) allowing collateral-free credit to the MSME sector. It includes both existing as well as new enterprises. The Ministry of MSMEs and Small Industries Development Bank of India (SIDBI) established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement CGFMSE scheme. Under this funding scheme, MSMEs get access to a loan amount of up to INR 200 lakhs with a special preference to eligible women. 

The Guarantee Cover is available to the extent of a maximum of 85% of the sanctioned amount of the credit facility. The fees charged by the trust funds is 1% per annum of the amount sanctioned:

  1. 0.75% for credit up to Rs. 5 lakh;
  2. 0.85% for credit above Rs. 5 lakh but up to Rs 100 lakh

As per the eligibility criteria, the already existing or newly established enterprises who are engaged in the following activities are eligible for this scheme,

1. Manufacturing activity

  1. Retail trade;
  2. Educational institutions;
  3. Self-help groups;
  4. Training institutions. 

2. Service activity, except

Must Read: 10 Types of Business Loans in India [Compare & Choose Best]

4. National Small Industries Corporation (NSIC)

NSIC is an ISO certified Indian Government enterprise under MSMEs. It is working to aid and promote the growth of MSMEs by providing combined support services encircling finance, marketing, technology and other allied services all across the nation. To encourage the growth of MSMEs, NSIC provides various schemes:

  1. Marketing Support Scheme - Marketing support is significant for the development of any business and also crucial for the growth of MSMEs in the present intense competitive market. To support such enterprises, NSIC devised schemes such as Consortia and Tender Marketing. NSIC forms Consortia of MSMEs working on behalf of MSMEs to reduce their burden), Marketing Intelligence (NSIC setup marketing intelligence cells to spreading awareness about several schemes for MSMEs) and Exhibitions and Technology Fairs.
  2. Credit Support Scheme - Under this scheme, NSIC provides finance for raw material procurement, finance for marketing activities and finance through syndication with banks to MSMEs.

5. Credit Linked Capital Subsidy Scheme (CLCSS)

CLCSS is an innovative credit scheme launched by the Ministry of MSMEs with the primary objective to aid the technology up-gradation of MSMEs, especially in rural and semi-urban areas. Under this scheme, businesses can opt for a 15% subsidy on investment in eligible machinery. However, there is a maximum cap on the subsidy restricting it to INR 1 crore.

The CLCSS offers various benefits to small scale industries that are:

  1. It provides 15% subsidy for purchasing an eligible plant, equipment and machinery which help in reducing the overall burden of small scale industries;
  2. Help small scale industries to upgrade to the latest and required technologies,
  3. It boosts the growth of rural industries which can now manufacture high-quality products.

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