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Government Business Loans for Small and Medium Enterprises

Top 10 Government Business Loans for Small and Medium Enterprises

Government business loan schemes in india

Monetary funds are one of the foremost requirements for any business setup and operation. Small scale industries are even in much need of financial support as they have to face tough competition from privately funded and well-established businesses. Government-funded schemes are preferred more by the small businesses for getting financed.

Government schemes help the Micro Small and Medium Enterprises (MSME) to finance their day-to-day expenses (operational), growth and expansion. All public sector banks work with government organizations/ institutes to provide sponsored loans for small businesses. The importance of such business loans is discussed below.

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

The government of India launched CGS in order to render collateral-free financial assistance to MSMEs. The scheme is valid for new entrants as well as existing business units throughout the country. A trust was established by the Ministry of MSME along with SIDBI (Small Industries Development Bank of India), named ‘Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in order to implement CGS for MSMEs.

The scheme features easy and collateral-free credit facilities in the form of working capital finance as well as term loans of cumulative amounts up to Rs. 1 crore per business unit. The contributed amount among GOI (Government of India) and SIDBI is in the ratio of 4:1 respectively. The scheme also caters to rehabilitation assistance to existing sick units.

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

SIDBI established a small business funding scheme in 1990 which has gone quite popular and plays a crucial role in the promotion and development of small business units in the nation. Some of such schemes are described as under:

  • Scheme and Equipment Finance Scheme
  • Indirect Assistance Scheme
  • Mahila Udyam Nidhi (MUN)
  • Single Window Scheme
  • Integrated Development of Leather Sector Scheme (IDLSS)
  • National Equity Fund, Scheme
  • FPTUFS – Scheme for Food Processing Industries
  • Promotional and Development Activities
  • Direct Assistance Scheme
  • Technology Development and Modernization Fund Scheme

GOI in association with SIDBI launched a loan program, the SIDBI Make in India Loan for Small Enterprises (SMILE) for MSMEs. SMILE has been allocated with an overall budget of Rs. 10,000 crores. SMILE focuses on 25 sectors under the Prime Minister’s ‘Make in India Vision’ and hence offers term based short term loans as well as quasi-equity to the MSME sector in India with easy rules and regulations.

  1. Credit Link Capital Subsidy Scheme for Technology Up-gradation

To survive the competitive global markets by reducing the manufacturing costs, the Indian industries constantly need to work on upgrading their processes as well as the setup (Plant and Machinery) of the industry. To help the industries do this, the Ministry of SSI (Small Scale Industries) has come up with a technology up-gradation scheme- the Credit Linked Capital Subsidy Scheme (CLCSS). This is done by extending a 15% upfront capital subsidy to SSIs for credit availed to upgrade their respective plant and machinery, and equipment. It must be noted that the maximum amount of subsidy is Rs. 15 lakhs.

Along with sole proprietorship concerns, the scheme is also available for partnership firms, private companies, cooperative societies/ firms and public limited companies. Around 3373 MSMEs benefitted from the scheme amounting to a subsidy of Rs. 215.29 crores in the year 2016 alone.

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

This scheme was basically launched in order to promote agriculture-based business enterprises in rural areas. Village and cottage industries are the major beneficiaries of NABARD, which aims at their financial assistance. The capital is shared between RBO and GOI which stood Rs. 5,000 crores in March 2015, out of which 4980 crores were held by the Government of India.

  1. National Small Industries Corporation Limited (NSIC)

It was launched in the year 1955 aiming to encourage SSIs in India. The major objective of the scheme is to import costly machinery on a hire-purchase basis. The scheme also caters to distribution as well as supply of both imported and indigenous raw materials along with export of the output of SSIs in the country. NSIC creates awareness in SSIs regarding the latest advancements in the field of SSI. To know more, one can log on to the NSIC-FFC portal or visit the nearest FFC centre along with loan proposal.

  1. Mini Tools Room and Training Centre Scheme

In order to provide assistance to state governments, the Government of India set up Mini Tool Rooms and Training Centers which offer one tome grant-in-aid as personal financial assistance. Developing more tool room facilities is the mission of the scheme, which ultimately aims at providing technical support to the MSME. The scheme also caters for the training of the public in tool design as well as tool manufacturing in order to create a skilled workforce, of engineers, supervisors and designers.

The scheme finances up to 90% of the cost of machinery/ equipment in the case of a new mini tool room, subject to a maximum of Rs. 9 crores. In the case of upgrading an existing tool room, the maximum financial assistance offered is 75% of the project cost, subject to a maximum of Rs. 7.5 crores.

  1. Market Development Assistance Scheme for MSMEs

This scheme facilitates MSMEs in the way of financing for participating in international exhibitions and trade fairs under the MSME India kiosk. The scheme is meant for showcasing the power as well as strengthening the Indian manufacturing MSMEs. The scheme also finances for sector-specific studies by export councils and industry associations. Hence, the scheme reimburses the one-time registration fees as well as annual fees, paid to GSI for the first three years of the bar code, at the rate of 75%.

  1. Technology and Quality Up-gradation Support to MSMEs

It is aimed at improving the quality of production of the MSMEs by encouraging them to adopt global manufacturing standards. The mission of the scheme is to lean the manufacturing MSME sector toward energy-efficient manufacturing processes and technologies which may ultimately reduce manufacturing costs. It will also help in the reduction of emission of harmful gases along with other by-products which hamper the atmosphere.

Under the scheme, the Government of India aids up to an extent of 75% of the actual expenditure which is incurred by the manufacturing unit for the purchase of eco-friendly and energy-efficient technology or process.

  1. MUDRA (Micro Units Development and Refinance Agency Ltd) Loan Scheme

This organization is established by the Indian Government for refinance and development activities related to micro-units. ‘Funding the Unfunded’ is the vision of MUDRA. There are three categories of loans under this scheme depending upon the stage of business and unit size. The maximum loan amount is also divided on the same criteria.

  1. Shishu loan- start-ups can be financed up to a maximum of Rs. 50,000
  2. Kishor loan- existing businesses can be financed for a new business ranging from Rs. 50,000 to Rs. 500,000.
  3. Tarun loan- established business units can be financed for expansion ranging from Rs. 500,000 to Rs. 1,000,000.

Low-cost funding is made available to Micro-Finance Institutions. MUDRA loans can be availed under Pradhan Mantri Mudra Yojana (PMMY) through any bank, NBFC or MFI. The rate of interest is as per RBI guidelines.

  1. Stand-Up India Scheme

Launched in April 2015, the scheme Stand-up India was funded with Rs. 10,000 crores by the Government of India. The fund is supposed to be utilized for providing easy, convenient, cheap and collateral-free loans to the women, scheduled tribes and scheduled caste entrepreneurs in order to promote micro-enterprises.

  • The scheme features granting loans ranging from Rs. 10 lakhs to Rs. 1 crore for setting up a new firm. The project needs to be a green-field project which means no prior finance from any bank or NBFC should have been obtained by the enterprise.
  • The scheme features debit cards for withdrawing working capital, comprehensive support to the borrowers and a repayment period of 7 years.
  • The minimum age required is 18 years. The individuals need to be SC, ST or women. In the case of non-individual borrowing, at least a 51% stake needs to be held by SCs, STs or women.

The tenure of these business loans varies from 1 year to 10 years. The above-mentioned business loan schemes by the government allow MSMEs to finance their day-to-day working capital i.e. operational expenses.


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