Top 5 Government Loan Schemes For Small Businesses in India

The Indian government ensures that small businesses have enough capital. Read on to know the top 5 government loan schemes for small businesses in India at IIFL Finance.

13 Nov,2022 10:32 IST 97 Views
Top 5 Government Loan Schemes For Small Businesses in India

India is pacing swiftly towards being a developed country as the economy is growing tremendously. One of the most important contributors to the Indian economy’s growth is the small businesses, also called Micro, Small and Medium Enterprises. However, it becomes difficult to raise capital for companies that do not have a high capital amount and valuable assets to pledge as collateral.

The Indian government has designed numerous business loan schemes for small enterprises in India to ensure they can raise credit with attractive and affordable interest rates and flexible repayment terms.

Government Loan Schemes

The Indian government invests heavily to ensure that small businesses in India have enough capital to cater to their business needs. They have created numerous departments responsible for offering ideal credit facilities to small businesses with flexible terms and conditions.

If you run a small business and need external funds to ensure smooth operations, you can consider various government schemes to take a loan. Here are the top five government business loans schemes to avail of an ideal business loan.

1. Pradhan Mantri Mudra Yojana

The Indian government launched this initiative with the motto of “fund the unfunded” to provide adequate capital to small businesses. The small business scheme works under the Micro-Units Development and Refinance Agency (MUDRA) Organisation responsible for providing loans to companies with fewer funds.

Under the loan scheme, there are three types of loans that entrepreneurs can choose from:
1. Tarun Loans (Rs 5 lakh-10 lakh)
2. Kishor Loans (Rs 50,000-5 lakh)
3. Shishu Loans (Up to Rs 50,000)

Small businesses can take loans under the scheme without collateral in retail, services, manufacturing and agriculture. However, the business must be a non-corporate small business operating in urban or rural areas of India to be eligible for the loan.

2. MSME Business Loans In 59 Minutes

This government initiative provides immediate capital to Micro, Small and Medium Enterprises. The Indian government has introduced the MSME loan in the 59 minutes scheme to enhance the process through which these companies get credit. The MSME loans in 59 minutes scheme allow MSME business owners to avail of an instant business loan from a consortium of Public Sector Banks (PSBs).
The 59 minutes loan ensures that MSME business owners get in-principle approval for a business loan of up to Rs 5 crore in 59 minutes from various public sector banks.

3. Credit Guarantee Scheme (CGS)

The Credit Guarantee Scheme (CGS) is a type of government business startup loan that provides collateral-free loans to small businesses as long as they pay the guarantee fee to the lender.

The small business scheme works under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the Ministry of MSMEs and the Small Industrial Development Bank of India (SIDBI). Entrepreneurs can utilise the business loans scheme to take a maximum loan of Rs 2 crore, with the loan guarantee cover being 75% for credit up to Rs 5 crore and 85% for credit up to Rs 1 crore.

Apart from self-help groups, training institutions and educational institutions, manufacturing companies and services activities are eligible to apply for the CGS scheme.
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4. National Small Industries Corporation Subsidy

The National Small Industries Corporation is a department under the MSMEs and is certified by ISO to offer marketing, finance, technological support and other services to small businesses. Small entrepreneurs can use the scheme through its two initiatives–the Marketing Support Scheme and the Credit Support Scheme.

The Marketing Support Scheme assists businesses in areas such as Tender Marketing, Space Marketing, Machines and Equipment Selling etc. On the other hand, the Credit Support Scheme supports small businesses by providing credit for up to 180 days and security as a bank guarantee.

5. Pradhan Mantri Employment Generation Program (PMEGP)

The Pradhan Mantri Employment Generation Program provides a maximum project cost of up to Rs 25 lakh in the admissible sector and Rs 10 lakh in the business sector. The loan amount is approved at the national level under the Khadi and Village Industries Commission (KVIC).

However, once approved, the loan is disbursed into the bank accounts through state-level agencies such as the state KVIC directorates, District Industries Centre (DICs), State Khadi and Village Industries Board (KVIBs) and the designated banks. The loan is available only for new projects, and the units already availed of a subsidy from other government departments are not eligible under the scheme.

Avail Of An Ideal Business Loan From IIFL Finance

Along with government business startup loans, you can get an ideal business loan from IIFL Finance. We offer loan products such as MSME business loans that are collateral-free with attractive interest rates and tailor-made for MSMEs with less financial needs. You can apply for the loan online by verifying your KYC details or visiting IIFL Finance nearest branch.

The loan application is paperless, with only minimal documents needed. IIFL Finance small business scheme is at par with government startup loans and offers instant approval and disbursal of the business loan amount. The IIFL Finance MSME loans do not require pledging an asset as collateral, and you can get the loan amount through a simplified loan application process.


Q.1: Does a small business loan interest attract GST?
Ans: No, MSMEs do not need to pay GST since businesses with a yearly turnover of less than Rs 6 crore are exempt from this rule.

Q.2: Do I need to pledge collateral to take an MSME business loan from IIFL Finance?
Ans: No, this type of loan does not require collateral to sanction the loan.

Q.3: Is it mandatory to have a business plan before availing of a start-up business loan?
Ans: Yes, for the approval of the startup loan, it is mandatory to have a business plan before applying.

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