Top 7 Business Loans by the Indian Government for MSMEs and Startups

The Indian start-up ecosystem is expanding at a rapid pace and this has been possible due to steady encouragement from the Government of India (GOI) through its various funding and loan schemes. The MSMEs and start-ups face a number of challenges in the country, especially to arrange working capital and funds for other expenditures. This is where the government support has been deemed crucial, and today, we will inform you about some of the top business loan schemes by GOI in favour of new and existing businesses.

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1. MSME Business Loans for Start-ups in 59 Minutes

This scheme was launched in September 2018, when the honourable Prime Minister of India, Shri Narendra Modi unveiled a 12-point action plan for the MSME sector last year. It is headed by CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). This business loan is meant for existing businesses that have GST numbers, are IT compliant, and with at least 6 months of bank statement facility. The eligibility of a company is decided upon its revenue/income, existing credit facilities, repayment capacity, and other factors as set by the banks.

Features of Start-Up Business Loans in 59 Minutes

• One can avail a loan amount of Rs. 1 lakh to Rs. 1 crore at a rate of interest 8% onwards.
• The aim is to provide loan approval in less than an hour.
• Time taken for fund disbursement will however depend on the documentation and information provided on the platform and the banks.
• Fund disbursal can usually take up to 7-8 working days.

2. Standup India

Headed by SIDBI, this scheme was launched in April 2016. At least one ST or SC borrower and one woman borrower per bank branch can avail of this loan to set up a green-field enterprise. Bank loans are available between Rs. 10 lakhs and Rs. 1 crore, under the scheme. The tenure of the loan is up to 7 years with 18 months as the maximum moratorium period.

Features of Loan under Standup India Scheme

• Financing of up to 75% of the project’s total cost, including working capital, is available.
• The above-mentioned condition cannot be applied if the borrower’s contribution with convergence support from other schemes is more than 25% of the project’s cost.
• The interest rate is the lowest applicable rate set by the bank for this loan category, not exceeding [base rate (MCLR) + 3%+ tenor premium].

Eligibility Factors:

• Enterprises in the services, trading, and manufacturing sector can take this business loan.
• The borrower must not be in default with any other financial institution or bank.
• Non-individual enterprises can also take this loan, but they must have a minimum of 51% shareholding and controlling stake by a woman or ST/SC entrepreneur.

3. 4E (End to End Energy Efficiency)

4E was launched in September 2016. It is headed by the Small Industries Development Bank of India (SIDBI). This MSME scheme was launched jointly by ISTSL (Indian SME Technology Services Ltd) in association with the World Bank. The objective of this funding scheme is to implement energy efficiency measures in the Indian industries. It aims to help start-ups with purchasing of second-hand equipment/machinery.

Features of End to End Energy Efficiency Scheme

• This business loan meets part costs of capital expenditure. It can include the cost of equipment/machinery purchase, installation, commissioning, civil works, etc.
• It can provide for any other related expenditure needed by the unit. However, the cost must not be greater than 50% of the capital expenditure.
• The loan amount is up to one-fifth of the total turnover of the company. The minimum loan amount is Rs. 10 lakhs and the maximum loan amount is Rs. 150 lakh.
• The repayment tenure is up to 36 months for a loan amount up to Rs. 100 lakhs. The tenure is up to 60 months for a loan amount more than Rs. 100 lakhs.
• The MSME start-up must pay Rs. 30,000 while the balance fee and applicable taxes will be paid by the SIDBI to the auditors.

Eligibility Factors

• MSME start-ups, which are from the services or manufacturing sector with a vintage of at least three years and earned cash profits in the past two years, can avail of this loan.
• To be eligible for this loan, the start-up must have a detailed project report prepared by a technical consultant/agency and vetted by EEC (Energy Efficiency Cell), SIDBI.
• It must have gone through a detailed energy audit by a technical consultant/agency i.e. a BEE (Bureau of Energy Efficiency)-certified energy auditor.

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4. Credit Guarantee Scheme (CGS)

This scheme is available for existing and new MSMEs from the service or manufacturing sector, excluding educational institutions, retail trade, self-help groups, training institutions, agriculture, etc. It is headed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The lending institutions include private, foreign, public, regional rural banks, and SBI and its associated banks. CGS intends to strengthen the credit delivery system and facilitate the flow of credit for the MSME sector.

Features of Credit Guarantee Scheme

• The credit guarantee commences from the payment date of the guarantee fee. It will run through the agreed period of the term credit for composite and term loans, or up to 5 years.
• The applicant can get a term loan or working capital loan of up to Rs. 200 lakhs.
• The guarantee cover is up to 75% of the credit facility, which is up to Rs. 10 lakhs.
• The guarantee cover is up to 50% of the amount for MSME retail trade, for a loan amount of up to Rs. 50 lakhs.

5. Coir Udyami Yojana

This loan scheme is for the agriculture sector. It is headed by the Coir Board and aimed to provide financial support to coir units. Projects can be financed by banks through composite loans, consisting of working and CAPEX capital. Financial institutions finance capital expenditure through a term loan to meet working capital requirements.

Features of Coir Udyami Yojana

• The subsidy is calculated by excluding the working capital component.
• After deducting 40% margin money and the owner’s contribution of 5% from beneficiaries, the loan amount will be 55% of the total project cost.
• Banks can provide a loan of up to Rs. 10 lakhs along with one cycle of working capital, not exceeding 25% of the project cost.
• The interest rate is at par with the base rate.
• The tenure is up to 7 years.

Eligibility Factors

• The coir processing MSME start-ups must be registered with Coir Board under the Coir Industry Registration Rules of 2008.
• Start-ups under any other scheme of the government of India, which has already benefitted from a government subsidy for the same purpose, cannot claim a subsidy under this scheme.
• Financial assistance is for companies, individuals, NGOs, institutions, and self-help groups registered under the Societies Registration Act 1860, joint liability groups, charitable trusts, and production co-operative societies.

6. Bank Credit Facilitation Scheme

It is headed by the NSIC (National Small Industries Corporation) and is available for all registered and eligible MSMEs in India. The NSIC entered into an MoU with the private sector and nationalized banks to meet the credit requirements of the MSME units. Through syndication with these financial institutions, NSIC arranges fund or non-fund-based limits without any cost to the MSMEs. Repayment tenure depends on the income generated by the company. It is usually up to 5 to 7 years, but in some cases, it can go up to 11 years.

7. Credit Linked Capital Subsidy for Technology Upgrades (CLCPTU)

This loan for business is to facilitate technology upgrades by offering upfront capital subsidies to SSI units including coir, khadi, and village industrial units on institutional credit. The financial support will help to modernize production techniques and equipment. This scheme is headed by the Office of the Development Commissioner, Ministry of MSMEs.

Features of (CLCPTU)

• The admissible capital subsidy is calculated on the basis of the purchase price of the machinery and plant instead of the term loan provided to the unit.
• The rate of subsidy is up to 15%.
• The ceiling on this business loan is up to Rs. 1 crore.

Eligibility Factors

• Existing small-scale industry start-ups must be registered with the State Directorate of Industries.
• They should have upgraded existing machinery and plant with state-of-art technology, without or with expansion.
• New SSI units registered with the State Directorate of Industries should be using proven, appropriate, and eligible technology approved by GTAB (Governing and Technology Approval Board/TSC (Technical Sub Committee).

The above-given business loans by the Government of India have provided plenty of opportunities to MSMEs and start-ups in the country. In the last 5 years, the country has seen immense growth in start-up and small and medium-scale industries, making India one of the most favourable destinations in Asia for doing business.