Looking to start your own business but worried about funding? Here is a complete guide for you to take advantage of government subsidy loans for businesses in India.
The government subsidy loan for business has been incorporated as part of the larger initiative of the government of India to provide an impetus to small businesses, start-ups and women entrepreneurs. The large-scale companies have deeper pockets and have been in operation for aeons, making it easier for them to generate the required cash flow to run a business successfully and deal with unforeseen circumstances because of a contingency fund in place.
For MSMEs (Micro, Small and Medium Enterprises) and entrepreneurs who are just starting, doing business isn’t relatively that easy. They are still struggling with the wrath of the legacy players, stiff competition, cash flow limitations and other such issues. There is a definite need for the government to do a little handholding regarding policy and funds. This is where government subsidy loan for business, such as the Pradhan Mantri Business Loan plays a significant role in helping businesses realise their potential.
The MSME sector, also known as the small-scale business sector, contributes around 40% to the country’s total Gross Domestic Product. Apart from that, it also generates employment on a large scale making this sector indispensable for any country’s economy. To help this sector realise and unleash its potential and withstand the stiff competition from privately-funded businesses, the Government of India has offered numerous government subsidy loans for businesses to finance this small-scale business sector. MSMEs can avail of these loans to expand their business, fund their day-to-day operations, invest in new equipment, hire human resources etc. The MSMEs offer solutions to the country’s critical issues such as unemployment, poverty, regional imbalances, income inequality, etc. Thus, with this initiative, the government will help MSMEs boost their businesses and, eventually, the economy. MSME business owners can apply for one of the below government subsidy loans for businesses.
Pradhan Mantri Business Loan or Pradhan Mantri Mudra Yojana (PMMY)
The Pradhan Mantri Business Loan scheme aims to extend funds to businesses that generate employment income in manufacturing, services, agriculture, and retail.
- Unsecured loan– The Pradhan Mantri Business Loan is collateral-free, and the borrower does not need to provide any security to avail of it.
- Stage-based loan– Based on the business’s stage, they can choose from three types of Business Loans, namely, Shishu, Kishor, and Tarun.
- Institutions that offer this scheme:The Pradhan Mantri Business Loan will be extended by cooperative banks, private & public sector banks, regional rural banks, non-banking financial companies, foreign banks, and micro finance institutions.
SIDBI Make in India Loan for Enterprises (SMILE)
The SMILE scheme has been designed to foster innovation, enhance skill development, facilitate investment, safeguard intellectual property, and create world-class infrastructure for MSMEs.
- Loan type:Under the SMILE scheme, an MSME can avail of either a term loan or a soft loan.
- Eligibility and preference:As a part of the Make in India initiative, MSMEs that are part of the 25 selected sectors will obtain financial support at competitive interest rates. They will give preference to businesses operating in the services and manufacturing sectors.
- Other features:More extended repayment periods, quick disbursement of funds to the business owner’s account and competitive interest rates.
Credit Guarantee Scheme for Micro and Small Enterprises (CGSMSE)
The CGSMSE scheme was incepted with the intent to offer an unsecured and collateral-free line of credit to the micro and small enterprise businesses segment.
- Loan type:Under the CGSMSE scheme, working capital and term loans are offered.
- Guarantee cover:The CGSMSE scheme guarantees a cover of up to 85% of the credit facility’s sanctioned amount. For MSEs owned and run by women, MSEs in the North-Eastern region and micro enterprises seeking up to Rs.5 lakh, the CGSMSE provides an 80% guarantee cover.
Credit Facilitation Scheme
NSIC (National Small Industries Corporation) facilitates the loans under this scheme by signing MoUs (Memorandum of Understanding) with financial institutions to offer loans to meet SME units’ credit requirements.
- Institutions that offer this scheme: MSME units can choose from public and private sector lenders for the loan to be facilitated.
- Loan type:Under the bank credit facilitation scheme, both Working Capital Loans and Term Loans are offered.
- Objective:Through the NSIC scheme, SME units don’t only avail of loans at affordable rates but also get assistance with the documentation process and other necessary loan-related services.
Stand-Up India Scheme
The Government of India announced the Stand-up India scheme to provide loans for businesses run by women and scheduled castes (SC)/scheduled tribes (ST). The SIDBI (Small Industries Development Bank of India) oversees this scheme. Every financial institution is mandated to provide this loan to at least one woman entrepreneur or SC/ST.
- Loan amount:The loan amount granted under the Start-up India scheme ranges from Rs.10 lakhs to Rs.1 crore. These funds are estimated to cover about 3/4th of the project cost.
- Eligibility:The enterprise should be a part of the trading, manufacturing or services sector.
- Loan type:The loan under this scheme has a composite nature, which includes term loan and working capital.
- Business structure:At least 51% of the controlling stake must be held by a woman, SC or ST.
MSME Loan in 59 minutes
MSME Business Loan in 59 minutes was introduced in September 2018 to increase the financial assistance to new and existing businesses to grow and be essential in the country’s growth. As the name suggests, the key feature of this loan is that the MSME Business Loan gets approved within 59 minutes.
- Loan amount:The amount provided under this scheme can go up to Rs. 5 Crores.
- Documentation required:Scanned copies of essential documents, such as GST verifications, KYC details, address proof, income tax verifications, account statements for the past six months, ownership proof, etc., need to be scanned and uploaded online.
- Rate of interest:Since MSMEs can avail of this loan from multiple lenders, the interest rate varies, starting at 8.5%.