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Securing financing is crucial for the success of any organization, regardless of its size. In today’s dynamic business landscape, with the launch of new startups happening every day. MSMEs and startups often struggle to obtain business loans to support their operations. Given the challenging economic conditions of the country, it can be quite difficult for them to secure loans. However, there is good news! We have compiled a list of the top best government business loan schemes. For MSMEs and startups to provide them with the necessary support.
India has emerged as a startup hub, with over 39,000 startups attracting multi-billion dollar funding from global investors. The country has also witnessed high-profile exits, such as the Walmart-Flipkart acquisition worth $16 billion. However, despite the success of some funded companies, a significant percentage of MSMEs still struggle to access formal credit. Many of them rely on informal sources for funding their businesses. While there are private equity and debt funding options available for established companies. Securing resources and funding at the idea or initial stage remains a major challenge.
To bridge this gap, the Indian government has introduced several schemes and initiatives to provide business loans to startups and MSMEs through authorized channels. One notable initiative is the 59-minute loan platform, which enables easy access to credit for MSMEs. Additionally, the Small Industries Development Bank of India (SIDBI) now directly lends to companies instead of routing loans through banks. These government-backed startup loans are offered at interest rates at least 300 basis points lower than those provided by banks.
Let’s take a closer look at the top best government business loan schemes for MSMEs and startups. That have been launched to support entrepreneurs and their businesses.
The 4E Scheme (End to End Energy Efficiency)
Launched in 2016, this scheme is headed by SIDBI and is a joint effort between India SME Technology Services Ltd (ISTSL) and The World Bank. Its primary objective is to implement energy efficiency measures across Indian industries. The scheme provides financial assistance to MSME startups in the manufacturing or services sector that have been operational for at least three years and have earned cash profits in the last two years. Eligible startups can receive up to 90% of the project cost as a loan. A minimum loan amount of INR 10 lakhs and a maximum amount not exceeding INR 1.5 Crore.
Credit Guarantee Scheme (CGS)
Managed by the Credit Guarantee Fund Trust for Micro and Small Enterprises, this scheme is available to existing MSMEs in the service and manufacturing sectors. It aims to enhance credit delivery and ensure the smooth flow of credit to the MSME sector. Under this scheme, banks provide term loans of up to INR 2 Crores per borrowing unit, with a guarantee cover of up to INR 1.5 Crore. Micro enterprises and businesses owned or operated by women can receive credit provision of up to 85% and 80% respectively. Retail traders can avail a guarantee cover of 50% of INR 50 lakhs.
Credit Linked Capital Subsidy for Technology Upgrades
This scheme, led by the Office of the Development Commissioner, Ministry of MSMEs, offers upfront funding subsidies to Small Scale Industries (SSI) units for the modification and upgradation of their production equipment and techniques. Existing SSI startups that have upgraded their plant and machinery with state-of-the-art technology are eligible for this scheme. The credit cover for new establishments has been increased from INR 40 lakhs to INR 1 Crore, with a subsidy rate of 15%.
Coir Udyami Yojana
Headed by the Coir Board, this scheme caters specifically to the agriculture industry. It supports the establishment of coir units by providing term loans and composite loans, which include capital expenditure and working capital. To avail this scheme, MSME startups must be registered with the Coir Board under the Coir Industry (Registration) Rules, 2008. Banks can support a maximum project cost of 10 lakhs, including one cycle of working capital not exceeding 25% of the project cost.
MSME Business Loans for Startups in just 59 Minutes
Launched in September 2018 and managed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), this scheme caters to various sectors. It offers a streamlined loan appraisal process, providing startups with an eligibility letter and in-principal approval within 59 minutes. The loan amount can range from 1 lakh to 1 Crore, with interest rates starting from 8% onwards.
Pradhan Mantri Mudra Yojana (PMMY)
Supervised by MUDRA (Micro Units Development and Refinance Agency Ltd). Top best Government Business Loan Schemes For MSMES this scheme provides refinancing assistance to banks and Micro Finance Institutions (MFIs) for lending to small units with loan requirements up to 10 lakhs. It is open to non-corporate small businesses in rural and urban areas. PMMY offers loans through three categories: Sishu (up to INR 50,000), Kishor (INR 50,000 to 5 lakhs). And Tarun (INR 5 lakhs to 10 lakhs).
SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
Supervised by SIDBI, the SMILE scheme aims to provide quasi-equity soft loans and term loans to MSMEs for meeting their debt-to-equity ratio. It supports new ventures and existing enterprises in the manufacturing and service sectors. The maximum loan amount for the General Category is INR 20 lakhs (subject to 10% of the project cost), while SC/ST/PwD and women entrepreneurs can avail up to INR 30 lakhs.
Stand Up India
Managed by SIDBI, this scheme offers loans ranging from INR 10 lakhs to 1 Crore to businesses in the manufacturing and services sector. At least one SC/ST or woman borrower is required per branch to qualify as a Greenfield enterprise. The scheme covers 75% of the project cost, including term loan and working capital.
Sustainable Finance Scheme
Supervised by SIDBI, this scheme focuses on financing projects related to green energy, non-renewable energy, technology hardware, and renewable energy. It provides term loans and working capital to entities involved in renewable energy projects and cleaner production initiatives. Interest rates are determined based on the existing credit rates of MSMEs.
Bank Credit Facilitation Scheme
Led by the National Small Industries Corporation (NSIC), Government Business Loan Schemes For MSMES scheme assists national registered MSMEs in meeting their credit requirements. The NSIC collaborates with various public and private sector banks to facilitate credit support without any additional cost to MSMEs. The repayment period ranges from five to seven years, depending on the generated income from the new establishment.
The introduction of these government business loan schemes for MSMES has significantly supported the growth of small enterprises and startup ecosystems in India. They have played a crucial role in turning nascent business and entrepreneurship ideas into reality. With the continuous efforts to promote ease of doing business, India has made significant progress in creating a conducive environment for startups and MSMEs to thrive.
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