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Government Business Loan Schemes for Micro, Small and Medium Enterprises (MSMEs)


To set up and run any business, finance is a major pre-requisite. Especially small scale businesses are in the need of financial support in order to beat the stiff competition they face from well-established or privately funded businesses. Government sponsored loans are always a preferred choice for smaller and growing businesses as they are more affordable.

Government business loans can help MSMEs manage their day-to-day operational expenses, growth and expansion costs and to ramp up their infrastructure. Several public-sector banks (such as State Bank of India, Bank of Baroda, Andhra Bank, etc.) work in tandem with the government to provide business loans under government-aided funding programmes.

Some important business loan schemes offered by public-sector banks are:

Working Capital Loans

Small businesses look for this type of financing to meet their daily operational costs or to purchase their business assets. Working Capital Finance can be obtained through a letter of credit or direct funding.

Corporate Term Loans

These loans are sought by entrepreneurs launching a small business (start-ups) as well as existing businesses aspiring to grow bigger.

Term Loans

These business loans are usually obtained by small businesses to buy fixed assets (such as building, equipment, land, etc.). The loan tenure may vary from 1-10 years. These loans come with floating interest rates and specific repayment schedules.

Apart from the above business loan schemes by public-sector banks, there are several schemes in place that are offered by the state and centre governments for the benefit of small scale industries in India. Let us talk about some of these schemes.

1. The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS)

The CGS was launched by the Government of India (GoI) to provide collateral-free finance to the micro and small enterprise sector. This scheme is available to new as well as existing businesses in India. A trust named ‘Credit Guarantee Fund Trust for Micro and Small Enterprises’ (CGTMSE) was established by the Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI),to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.

The scheme makes available credit facilities in the form of term loans and working capital financing of up to Rs. 100 lakh per borrowing unit. The amount is contributed by the Government and SIDBI in the ratio of 4:1, respectively. Under the scheme, rehabilitation assistance is also made available to sick units.

2. Small Industries Development Bank of India Loan for Small Enterprises (SMILE)

SIDBI began its small business funding schemes way back in 1990, and is now a popular financial institution that plays a vital role in the development and promotion of the Indian small business community. Some schemes offered by SIDBI include:

  • Indirect Assistance Scheme
  • Direct Assistance Scheme
  • National Equity Fund, Scheme
  • Promotional and Development Activities
  • Technology Development and Modernization Fund Scheme
  • MahilaUdyam Nidhi (MUN)
  • Single Window Scheme
  • Integrated Development of Leather Sector Scheme (IDLSS)
  • Scheme and Equipment Finance Scheme
  • FPTUFS – Scheme for Food Processing Industries
  • In association with SIDBI, Govt. of India has launched an innovative loan program for SMEs, the SIDBI Make in India Loan for Small Enterprises (SMILE). A budget of Rs 10,000 crore has been allocated to SMILE.

    Focused on the 25 sectors under PM Modi’s Make in India vision, SMILE will offer quasi-equity and term based short term loans to Indian SMEs with less stringent rules and regulations.

    3. Credit Link Capital Subsidy Scheme for Technology Upgradation

    To reduce the cost of manufacturing and remain price competitive in the global market, MSMEs need to constantly Upgrade their processes as well as the corresponding plant and equipment. To aid them in creating an impact in the international trade, the Ministry of Small Scale Industries (SSI) offers a scheme for technology upgradation of Small Scale Industries, the Credit Linked Capital Subsidy Scheme (CLCSS). The scheme is launched to facilitate technology upgradations by extending an upfront capital subsidy of 15% (up to a maximum of INR 15 lakhs) to SSI units for credit availed by them for the upgrading of their plant and equipment.

    This scheme is available to machinery to sole proprietorship, partnership firms, cooperative, private and public limited companies. In year 2016 itself, about 3373 MSMEs benefitted from this scheme, availing subsidy amounting to about 215.29 crores (source:http://www.dcmsme.gov.in/schemes/credit_link_scheme.htm).

    4. National Bank for Agriculture and Rural Development (NABARD)

    This scheme was launched mainly to promote agriculture-based rural business enterprises. Cottage and village industries are the main beneficiaries of NABARD, which aims to offer financial assistance to them. With the capital share between Government of India and RBI, the paid up capital as on 31 March 2015, was 5000 crore (Government of India holding 4,980 crore and RBI holding 20.00 crores).

    5. National Small Industries Corporation Limited (NSIC)

    NSIC was launched in 1955, with an aim to encourage small-scale industries in India. The main feature of NSIC is to import machines on hire-purchase terms. It stresses on supply and distribution of both indigenous and imported raw material as well as on exporting the products of small business units. Further, it promotes awareness about advancements in the small-scale industries sector of the country.

    Interested MSMEs can either log in to the NSIC-FFC portal or contact the nearest FFC centre offline with their loan proposal.

    6. Mini Tools Room and Training Centre Scheme

    The Government of India, in order to provide assistance to the state governments set up Mini Tool Room and Training Centres, offers financial assistance in the form of one-time grant-in-aid. The mission of this scheme is to develop more tool room facilities to provide technological support to the MSMEs and training in tool manufacturing and tool design to create a skilled workforce of workers, supervisors, engineers/designers.

    The financial support equals to 90% of the cost of machinery/equipment (up to a maximum of INR 9 crores) in case a new Mini Tool Room is to be created. In case an existing room is to be upgraded, 75% of the cost (up to a maximum of INR 7.50 crore) is funded.

    7. Market Development Assistance Scheme for MSMEs

    The Market Development Assistance Scheme for MSMEs facilitates funding for participation in international trade fairs and exhibitions under MSME India kiosk. This aims at helping Indian manufacturing SMEs gain a grip in the international markets.

    It also offers financing for sector-specific market studies by industry associations, and export promotion councils. This scheme offers reimbursement of 75% of a one-time registration fee and 75% of annual fees (recurring) paid to GSI by SMEs for the first three years for the bar code.

    8. Technology and Quality Upgradation Support to MSMEs

    The scheme also aims to improve the production quality of MSMEs to encourage them to adopt global manufacturing standards. The mission of this scheme is to sensitize the manufacturing MSME sector to make use of energy efficient technologies and manufacturing processes to reduce manufacturing costs and emissions of harmful gasses and other by-products that can hamper the environment.

    Under this scheme, the Indian Government provides financial support up to the extent of 75% of the actual expenditure to assist manufacturing sector purchase energy-efficient technologies for production.

    9. Mudra Loan Scheme

    Micro Units Development and Refinance Agency Ltd (MUDRA) is an organization established by the Government of India for development and refinancing activities relating to micro units. The vision of MUDRA IS – ‘Funding the Unfunded’.

    Mudra Loan Yojana, is a 3-teir government loan structure targeted towards different businesses depending on the size and stage of the business. The three tiers of this Mudra Loans are:

    • Shishu Loan (Finance up to INR 50,000for start-ups).
    • Kishore Loan (Finance ranging between INR 50,000 and INR 500,000 for existing but new businesses).
    • Tarun Loan (Finance ranging between INR 500,000 and INR 10,00,000 for established businesses looking for expansion).

    Mudra bank loan initiative makes available low cost funding for MFI (Micro Finance Institutes). MUDRA would be responsible for refinancing all financiers or financial institutions engaged in financing of Small Businesses, Societies, Co-operative Societies, Small Banks, Scheduled Commercial Banks and Rural Banks that are in the business of lending to micro or small businesses engaged in manufacturing, trading and services industries.

    MUDRA loans can be obtained through any Bank, MFI, or NBFC for availing of MUDRA loans under Pradhan Mantri Mudra Yojana (PMMY). The lending rates are as per the prevailing RBI guidelines issued in this regard.

    10. Stand-Up India Scheme

    The government of India has proposed a funding of INR 10,000 crore for Stand-Up India (Launched in April 2015). This fund will be distributed among the women, scheduled castes, and scheduled tribes entrepreneurs to promote their micro-enterprises in the form of loans which will be extended by the banks.

    Under this scheme, they can be provided a composite loan between INR 10 lakh and up to INR 1 crore for setting up a new enterprise. Some features of the scheme include: Debit Card (RuPay) for withdrawal of working capital, repayment period of up to 7 years, a comprehensive support for borrowers for the needs pertaining to pre-loan, facilitation, marketing, and operational phases.

    SC/ST and/or Women entrepreneurs, above 18 years of age are eligible beneficiaries. Loans under the are available for only green field project. Green field signifies, in this context, the first-time venture of the beneficiary in the manufacturing or services or trading sector.

    In-case of non-individual enterprises, 51% of the shareholding and controlling stake should be held by either SC/ST applicants and/or Women Entrepreneurs.

    Thus, we can see that the current Indian government has a lot to offer to the MSMEs in India. Choose the appropriate Government business loan scheme as per your industry and funding needs of your small-scale business.

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