Introduction: Government business loans
Government business loans were designed primarily to give money to people, company owners, and MSMEs involved only in commerce, manufacturing, and services. The government has launched a number of loan programs that may be selected based on the type of the firm and its needs. The types, characteristics, and eligibility requirements of business/MSME loans offered by banks and NBFCs, as well as credit initiatives introduced by the Indian government, are also highlighted.
Table of Contents
6 Government loan programs for new MSMEs and startups
1. MUDRA Loan through PMMY
This plan was established by the government to give financing to non-corporate, non-farm small/micro-enterprises. Mudra loans are available through commercial banks, private and public sector banks, regional rural banks (RRBs), small financing banks, and corporate banks. Interested applicants should contact one of the financing institutions listed above or apply online at MUDRA's official website. MUDRA loans are most commonly employed by small firms and startups.
The applicant's age should be at least 18 years old and no more than 65 years old.
Applicants who have never had a loan default in the past
Individuals, MSMEs, sole proprietorships/enterprise companies in rural and urban regions, as well as individuals, MSMEs, and sole proprietorships/enterprise firms, can apply for the loan under the Non-Corporate Small Business (NCSB) sector. The following are some instances of NCSBs:
- Small manufacturing facilities
- Units of the service sector
- Vendors of fruits and vegetables
- Truck drivers
- Food-service establishments
- Auto repair shops
- Operators of machines
- Small businesses
- Food processors and a variety of other businesses
2. India Stand-Up
Stand up India, which is governed by the Small Industries Development Bank of India (SIDBI), was established to give money to persons belonging to the SC/ST group as well as women entrepreneurs. This plan grants bank loans ranging from Rs. 10 lakhs to Rs. 1 crore to at least one SC/ST and one female borrower per bank branch.
This plan considers businesses in the commerce, manufacturing, or service industries to be eligible for loans. In the event of non-individual firms, at least 51 per cent of the ownership interest must be held by a SC/ST or female entrepreneur.
3. 59-Minute PSB/MSME Loans
On November 5, 2018, the Prime Minister inaugurated a specialised digital platform or online site called psbloansin59minutes.com to enable new enterprises and MSMEs to obtain loans of up to Rs. 5 crores in just 59 minutes of approval. The Indian government created this loan plan to give financial help to Startups, Micro, Small, and Medium Enterprises (MSMEs) throughout India. The following are some of the most notable characteristics of this loan type:
Annual interest rate: 8.50 per cent and up
Loan amounts range from Rs. 1 lakh to Rs. 5 crores.
Loans with No Collateral: Because the online portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) programme, collateral or security is not required.
Quick access to financial assistance: Such loan processes typically take 7-10 working days to complete. The loan approval process, on the other hand, takes only 59 minutes.
Quick disbursement: After the loan is granted in an hour, you can anticipate the funds to be disbursed within 7-8 working days.
4. Subsidy from The National Small Industries Corporation (NSIC)
Under the National Small Industries Corporation Subsidy (NSICS), the government assists small businesses with two financial benefits: marketing support and raw material assistance. Its advantages are as follows:
- Tenders at no cost: Under the marketing support programme, Small-Scale Industries (SSIs) will have free access to tenders.
- There are no security deposits required: SSIs (Small Scale Industries) are free from paying a security deposit when obtaining financing.
- Land and building financing: The plan offers a financial assistance for the land and building department for SSI units with a project cost of less than Rs. 25 lakhs.
Not every government initiative provides loan subsidies to businesses.
5. Siddhi Soft Loan Fund for MSMEs Made In India (SMILE)
SMILE, which was established in 2015, is managed by the Small Industries Development Bank of India (SIDBI). The goal of this plan is to provide soft loans in order to fulfil the required debt-equity ratio for the development of new MSMEs as well as the expansion of existing ones. During the COVID periods plan, the interest rate given under SMILE Timely Working Capital Assistance is 8.25 percent.
Eligibility: All current borrower accounts, including those under Credit Delivery Arrangements, with total outstanding credit facilities of up to 25 crores as of February 29th, 2020.
6. Loan Guarantee Program (CGS)
The Government created the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to enhance and streamline credit delivery to the MSME sector. Under this program, lending institutions include public, commercial, and international banks, as well as Regional Rural Banks (RRBs) and the SBI with its partner banks.
This plan is open to new and current MSMEs involved in manufacturing or service operations, excluding retail commerce, educational institutions, agricultural, Self-Help Groups (SHGs), and training institutes.
- This MSME plan for enterprises offers term loans and/or working capital loans of up to Rs. 2 crore per borrowing unit.
- The guarantee granted is for up to 75% of the loan amount up to Rs. 1.5 crore.
- Micro-enterprises receive 85 percent of credit facility for loans up to Rs. 5 lakh.
- 80 percent of credit facility for women-owned/operated MSMEs, and all loans to the North Eastern Region, including Sikkim
- The guarantee cover for MSME Retail trade is 50% of the amount in default, up to a maximum of Rs. 50 Lakh.
Factors Influencing an Applicant's or Enterprise's Eligibility
The following are the primary aspects that influence an applicant's or enterprise's qualifying criteria:
- The applicant's age
- Repayment history and financial stability of the applicant
- Business nature and kind
- Vintage Business
- Credit score of the applicant or credit rating of the company
- Loan amount desired
- Annual business turnover, ITR, and profit and loss statement
- Invested capital as well as goods/raw materials/equipment/machinery to be employed
- Debts, current loans, and any previous defaults
Individuals, Startups, MSMEs, merchants, manufacturers, traders, sole proprietorships, partnership businesses, company owners, public and private limited corporations, major enterprises, and so on are all eligible for government loans. To apply for a government business loan, you must be at least 18 years old. Existing enterprises must have been in operation for at least one year in order to qualify for a loan.
Documents Necessary for a Loan Application
The paperwork needed for these government initiatives may differ from one another. However, to give you an idea of what papers you could need to apply for the programs, we have included a few common documents:
- Completed application form and passport-sized pictures
- KYC documentation: Proof of Applicant's Identity, Age, and Address: Passport, Voter ID card, Aadhar card, Driver's License, PAN card, and Utility Bills (Water & Electricity Bills)
- Bank statements for the previous six months
- Certificate of Business Establishment
- Vintage Proofs and a Business Address
- PAN card for a business
- Proof of eligibility for the SC/ST/OBC categories, if relevant
- Any other documents that the bank may request
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.
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