Top 5 Government Loan Schemes For Small Businesses in India

Small-sized businesses are an important part of the Indian economy. Micro, small and medium-sized enterprises (MSMEs) not only employ a large part of the workforce in the organised sector but also earn critical foreign exchange through exports to dozens of countries. It’s important, therefore, that these businesses get adequate bank credit to stay in good health and continue supporting the economy.

The government runs several schemes to provide term loans and working capital as part of measures to help small businesses. These schemes have different features depending on its targets. While some schemes carry low interest rates, others do not need collateral and some others offer loan guarantees or interest subvention.

Here are the five schemes run by the government to support small businesses:

Credit Guarantee Scheme

The government had launched the Credit Guarantee Fund Scheme to provide collateral-free credit to small enterprises, both existing and new ones. It includes term loans and working capital facilities for up to Rs 2 crore. It provides guarantee cover that ranges from 50% to 80% depending on the loan size and type of beneficiary.

MUDRA Loan

The Pradhan Mantri MUDRA Yojana provides collateral-free loans of up to Rs 10 lakh to individuals to support them to launch or grow their businesses. In this scheme, banks, non-banking finance companies and microfinance institutions offer loans for income-generating activities in manufacturing, services and allied agriculture sectors.

This scheme has three categories based on the amount. Under the Shishu category, loans up to Rs 50,000 are covered. The Kishore category is for loans between Rs 50,000 and Rs 5 lakh while the Tarun scheme includes borrowings above Rs 5 lakh and up to Rs 10 lakh.

Credit-linked Capital Subsidy Scheme

This scheme aims to help small businesses upgrade their technology infrastructure, including plant and machinery, by offering a capital subsidy of 15% upfront on institutional finance of up to Rs 1 crore.

59-minute loan

This is a scheme supported by government-owned Small Industries Development Bank of India (SIDBI) and state-run banks to provide quick loans to small businesses. Under this initiative, small businesses can log on to the website www.psbloansin59minutes.com and seek approval of loans for up to Rs 5 crore in 59 minutes, or less than an hour. At present, as many as 21 banks are part of the scheme.

PM Employment Generation Programme

The Prime Minister's Employment Generation Programme aims to provide financial help to set up small businesses in the non-farm sector. The scheme covers projects costing up to Rs 50 lakh in the manufacturing sector and Rs 20 lakh in the service sector. The borrowers get margin money subsidy of 25% of the project cost in rural regions and 15% in urban centers.

Conclusion

Small businesses are the backbone of the manufacturing and service sectors in India. To support such businesses, there are a number of government schemes with an aim to provide adequate funds to the sector.

So, if you are a budding entrepreneur seeking to launch or grow your small enterprise, you could check out these government lending schemes in addition to seeking loans from banks and non-banking finance companies.