Finance is the backbone for every organization, no matter how big or small. In the present scenario, every day, a new startup is launched; therefore, MSMEs and Startups struggle to fetch business loans to support themselves. What can they do when it is so difficult to get a loan given the present economic conditions of the country. Fret not! Here we are with the best government business loan schemes for MSMEs and Startups to help you.
India, at this day, is a hub of startups with more than 39K startups, with funding of multi-billion dollar from global investors, and is commemorating high-profile exits such as Walmart-Flipkart acquisition of $16 billion. Also, the dare of setting up and constructing the user base, among others, due to huge funded companies of about 577 Cr as specified by India’s micro, small, and medium enterprises (MSME) sector.
To execute a plan the requisite working capital is required on time or else it just stays as a plan. According to some statistics, not more than 5% of MSMEs have access to formal credit, due to which the greater percentage relies on informal sources to receive funds for their businesses. For an establishment, there is a huge availability of private equity and debt funding options. Still, it is a great challenge to receive resources/funding at the idea or initial stage.
In a move to address this void, the Indian government has come up with the best schemes and initiatives to offer business loans for startups and MSMEs through authentic and authorized channels. Not too long ago, a loan platform was set into motion known as the 59-minute loan, to enable easy access for MSMEs to acquire credit. Also, the direct lending to the companies is started by Small Industries Development Bank of India (SIDBI) instead of it going through banks. These startups loans provided by the government are at the minimum 300 basis points below than the ones the banks provide.
Let us have a look at some of the best government business loan schemes for MSMEs and Startups that have been launched to help entrepreneurs and their businesses.
Table of Content
- 1. The 4E scheme that is the End to End Energy Efficiency
- 2. Credit Guarantee Scheme (CGS)
- 3. Credit Linked Capital Subsidy for Technology Upgrades
- 4. Coir Udyami Yojana
- 5. MSME Business Loans for Startups in just 59 Minutes
- 6. Pradhan Mantri Mudra Yojana (PMMY)
- 7. SIDBI Make in India Soft Loan Fund for MSME’s (SMILE)
- 8. Stand Up India
- 9. Sustainable Finance Scheme
- 10. Bank Credit Facilitation Scheme
1. The 4E scheme that is the End to End Energy Efficiency
It was launched in the year 2016 for agnostic sectors and is headed by SIDBI. This scheme is launched for entrepreneurs jointly by India SME Technology Services Ltd (ISTSL) in alliance with The World Bank. This alliance’s main objective is to implement energy efficiency measures across Indian industries on an end-to-end basis. Also, it aims to aid the newly established businesses in matters related to money for purchasing second-hand equipment.
- MSME startups in the manufacturing or services sector should have earned cash profit in the last two year and that have been smoothly operating for at least three years.
- Eligible only where it has no association with any bank/financial institutions.
- The detailed energy audit (DEA) process via a technical agency/consultant that is a Bureau of Energy Efficiency (BEE)-certified energy auditor must be completed.
- The World Bank-Global Environment Facility (WB-GEF) provides them with a grant linked with their performance, which should not be availed by the units. The project should be in compliance with the Social Management Framework and with the environment as proposed for energy efficiency.
- The Energy Efficiency Cell (EEC), SIDBI, should examine the comprehensive project reports that are prepared by the technical consultancy.
The 4E scheme is best for MSMEs and startups, which meets the part cost of capital expenditure, including for the purchase of equipment, its installation charges, commissioning, civil works, etc. Not more than fifty percent of capital expenditure shall be utilized for any other expense requirements
The 4E scheme provides with various fiscal incentives such as:
- The startup MSME has to pay only Indian National Rupees(INR) 30,000 and applicable taxes as the balance in the fee will be paid by SIDBI to the auditors.
- This scheme provides up to 90% of the project cost with a minimum loan amount of INR 10 lakhs and a maximum loan amount not exceeding INR 1.5 Crore.
- The eligible loan amount should not be exceeding one-fifth of the total applicant unit turnover.
- The repayment period includes a moratorium period of up to six months at the initial stage.
2. Credit Guarantee Scheme (CGS)
This government scheme is specifically for the agnostic industries. It is led by Credit Guarantee Fund Trust for Micro and Small Enterprises. The scheme is available only to the raw and existing MSMEs dealing with service sector activities, and with manufacturing activities, it does not include retail trade, agriculture, self-help groups (SHGs), training institutions, etc.
The Credit Guarantee Scheme was set afloat by the Indian government, as one of it’s best schemes for MSMEs and startups, to tighten the credit delivery method and to encourage the swift flow of credit to the MSME sector. This government scheme constitutes almost all types of banks like public sector banks, private banks, along with regional rural banks, the State Bank of India and its associate banks, and the foreign banks.
This government MSME scheme for entrepreneurs comes with a number of financial incentives such as:
- The facility of term loans per borrowing unit of, up to 2 Crores.
- The guarantee cover of up to 1.5 Crore.
- Micro enterprises are provided with 85% of credit provision on borrowings up to INR 5 Lakh and 80% of borrowing facility for MSMEs or startups owned or operated by women.
- A guarantee cover of 50% of INR 50 Lakh is set for retail traders, which is also the default amount.
The surety of credit will begin from the date of payment of the guarantee fee. It will move through the agreed tenure of the term credit if it a term loan or a composite loan and for a period of five years if the working capital facilities are held out to borrowers or for such period as may be specified by the guarantee trust.
3. Credit Linked Capital Subsidy for Technology Upgrades
A scheme for the agnostic sector, led by the Office of the Development Commissioner, Ministry of MSMEs.
This business loan provided to the debtors for the new establishment gives upfront funding subsidies to Small Scale Industries (SSI) units, including the village, khadi, and coir industrial units, on institutional finance. The credit availed by them is for modification and up-gradation of their production equipment (plant and machinery) and techniques.
It is desirable only for the existing small-scale industry (SSI) startups that have upgraded their existing plant and machinery with state-of-the-art technology, with or without expansion, and are lodged with the State Directorate of Industries; are eligible for this scheme. Also, new Small scale industry units that use the appropriate and proven technology, duly approved by the Governing and Technology Approval Board (GTAB)/Technical Subcommittee (TSC) and is registered with the State Directorate of Industries.
Financial benefit given by this government scheme; the business loan cover for the new establishment has been increased from INR 40 Lakh to INR 1 Cr while the rate of subsidy has been enhanced from 12% to 15%. So if one wants to calculate the admissible capital subsidy, one has to pay due attention to the purchase price of plant and machinery, instead of the term loan disbursed to the beneficiary unit.
All the above four schemes were for the agnostic based industrial sectors and are termed to be the best government schemes for startups and s micro, small, and medium enterprises (MSME) sector.
4. Coir Udyami Yojana
Headed by the Coir Board, this scheme specifically caters to the needs of the agriculture industry. This scheme primarily supports the establishment of Coir units. In this, banks give out term loans in the form of cash to meet the working capital requirements of the business. Loans are also given in the form of composite loans, which include Capex (capital expenditure) and working capital.
Eligibility – To avail of this scheme, MSME startups must be registered with the Coir board under the Coir Industry (Registration) Rules, 2008.
Incentives – Banks under this scheme will support a maximum project cost of 10 lakhs. This will also include one cycle of working capital, not exceeding 25% of the project cost.
- All these incentives are exclusive of the INR 10 lakhs limit.
- Credit has to be 55% of the total project cost after deducting a margin of 40% and the owner’s contribution of 5%.
- The subsidy is calculated along with the working capital component.
Time – For business loans, rates of interest are the same as the basic rate. The repayment deadline does not exceed a period of 7 years after an initial moratorium, as deemed by the institute concerned.
5. MSME Business Loans for Startups in just 59 Minutes
Launched in September 2018 and headed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), this Government financial scheme caters to agnostic sectors. This superfast loan disposal scheme was unveiled by Prime Minister Narendra Modi during the introduction of 12 point action plan for the MSME sector.
This scheme aims to make various processes of loan appraisal automatic. The borrower receives an eligibility letter, in-principal approval, in just 59 minutes and chooses the bank to access the cash finally. Following this method, the time taken for the disbursement of the loan depends on the timely submission of the various required documents. Generally, if the documentation is on time, the disposal of loans takes 7-8 working days.
Eligibility – Businesses should be GST, IT compliant with 6 months bank statement. The approval of this loan will be based on the start up’s Income, repayment capacity, existing credit status, and any other factor that the bank finds suitable for the decision making.
Incentives – The credit limit for this contactless business loan is 1 lakh to 1 Cr. The rate of interest begins from 8% onwards.
6. Pradhan Mantri Mudra Yojana (PMMY)
Supervised by MUDRA or Micro Units Development and Refinance Agency Ltd and launched in 2015, the PMMY aims to serve the agnostic sectors. It is one of the best Government Business Loan Schemes For MSMES And Startups. MUDRA provides refinancing assistance to banks and MFI (Micro Finance Institutions) to lend to small units that have loan requirements of up to 10 lakhs. According to recent reports, in the year 2017-2018, business loans amounting to 2.54 lakh Cr were identified as MUDRA loans showing a 41% increase compared to the previous year. For the year 2018-2019, a target of 3 lakh Cr MUDRA loan was set.
Eligibility – Those who belong to the non-corporate small business segment (NCSB) comprising of proprietorship or partnership firms in rural and urban areas can avail the benefit of this loan. Some examples of NCSB’s include;
- Food processors
- Small manufacturing units
- Service Sector units
- Small industries
- Fruits and Vegetable vendors
- Machine operators
- Truck operators
- Foodservice units
Incentives – MUDRA loan functions through its three subdivisions as follows:
- Sishu: Loans amounting to INR 50,000
- Kisor: Loans amounting to INR 50,000 – 5 Lakh
- Tarun: Loans amounting to INR 5 Lakh to 10 Lakh
Loans up to 10 lakhs that are given to MSMEs are without collateral. Apart from those mentioned above, MUDRA caters to the needs of various business segments and entrepreneurs.
7. SIDBI Make in India Soft Loan Fund for MSME’s (SMILE)
Supervised by the Small Industries Development Bank (SIDBI), the SMILE scheme for business loans was launched in 2015. This, too, caters to the need of the agnostic sectors. SMILE aims to provide quasi-equity soft loans and term loans with lenient conditions. Loans are given to MSMEs so that they can meet their debt to equity ratio. It also aims to aid in the growth of existing MSMEs.
Eligibility – New ventures belonging to the manufacturing and service sectors can avail of this loan. Existing enterprises that require expansion, modernization, or technology upgrades for the betterment of their business can also use the benefits of this financial scheme.
Incentives – For the General Category, a maximum loan amount of INR 20 lakh subject to 10% of the project cost is provided.
For Scheduled Caste (SC)/ Scheduled Tribe (ST)/ Persons with Disability (PwD) and women, a maximum amount of INR 30 lakh is provided.
However, all the mentioned categories must own a stake of 51% or higher in the business.
Time – Three years from the disbursement of the first amount, the soft loan is converted to a term loan along with all the dues with the prevalent rate of interest as deemed by the borrower. The repayment period is up to 7 years with a moratorium of 1.5 years for term loan and 2 years for a soft loan.
8. Stand Up India
Just like the SMILE scheme of business loan, Stand up India is also managed by the Small Industries Development Bank of India (SIDBI) and seeks to serve the agnostic sector. It was introduced in April 2016. This Government scheme offers loans on amounts ranging from INR 10 lakh to 1 Cr. At least one SC/ST or woman borrower is required per branch for it to become a Greenfield enterprise. To date, 3457 business loans from Stand up India have helped startups and businesses to flourish.
Eligibility – Businesses and startups belonging to the manufacturing and services sector can avail of this loan. Where businesses are non-individual, a minimum of 51% of the shareholding stake must be held by an SC/ST or a woman entrepreneur.
- The scheme offers composite loans of INR 10 lakh and INR 1Cr and covers 75% of the project including term loan and working capital
- Cases, where the borrower contributes more than 25% of the project cost using other financial methods then as per the rules of this scheme covering 75% of the cost, will not be applicable
- Rate of interest should be the lowest applicable one according to the bank and should not be more than the culmination of base rate + tenor premium + 3%
Time: Loans under Stand up India has a repayment period of 7 years with a moratorium period not exceeding 18 months.
9. Sustainable Finance Scheme
Like the name suggests, this Government business scheme is primarily for Green Energy, Non-Renewable Energy, Technology hardware, and Renewable Energy. It is also managed by the Small Industries Development Bank of India (SIDBI). The purpose of this Government scheme is to help the chain of energy efficiency (EE)/ cleaner production (CP) and projects of sustainable development. This scheme is important as projects of such nature are not covered under the existing sustainable financing schemes.
Eligibility – To avail the benefits of this loan, one has to own an enterprise related to renewable energy projects like wind energy generators, mini hydel power projects, solar power plants, biomass gasifier power plants for captive, or non-captive use. This includes;
- Potential cleaner production (CP) like waste management.
- Businesses which provide aid to original equipment manufacturers (OEM’s) which produce energy-efficient/ green machinery/ cleaner production equipment.
- The OEM in question should be an MSME or should be a supplier of multiple MSME’s.
Incentives – This scheme aims to give term loans or working capital to ESCO’s executing EE/CP or Renewable energy projects. However, the ESCO should be an MSME, or the unit to which it is supplying should be an MSME. Rates of interest will depend on the existing credit rates of MSMEs.
10. Bank Credit Facilitation Scheme
It is also one of the best government business loan schemes for MSMEs and startups launched for the agnostic sector and is led by National Small Industries Corporation (NSIC).
Only national registered MSMEs are fit for this government scheme. The credit requirements of MSME units are met via this scheme. The National Small Industries Corporation has got into a Memorandum of Understanding with the various public as well as private-owned sector banks for the purpose of directing meets via the amalgamation with these funding entities, the NSIC arranges for credit support from banks without any extra cost caused to MSMEs.
The repayment period generally extends from five years to seven years and may vary according to the resultant income generated form the new establishment. However, it may seem to extend up to 11 years according to the circumstances.
Ever since the advent of the Startup India Action plan and Stand up India Scheme, more than 50K other variations of Government schemes have come into existence. This has no doubt helped small enterprises to grow in the initial stages. Due to such fluid financial schemes, India had ranked 77th in the 2018 World Matrix on the Ease of doing business.
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The Department of Industrial Policy and Promotion has started the State Startup Ranking Framework, where Gujarat tops the list of startup ecosystems. It can be said without a doubt that the series of such successful Government Business schemes have helped many nascent business and entrepreneurship ideas to turn into reality.