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Government business loan schemes in India: All you need to know

  • Highlights

  • SMEs face financial challenges owing to their small set-up

  • Easy and timely funds will help fuel growth of this sector

  • Government business loans for MSMEs can help bridge this gap

  • Customised Loans for SMEs by Bajaj Finserv offers instant loan approval

India has more than 40 million registered and unregistered SMEs engaged in varied sectors including IT, manufacturing, packaging, and food processing. This sector is one of the key growth drivers of the country, contributing about 40% to India’s GDP. Recognising the importance of this sector, the government has started the ‘Make In India’ initiative to encourage more SMEs to become a part of India’s growth journey.  

The challenge for SMEs/MSMEs

Owing to their small size, SMEs and MSMEs, as compared to big firms, are burdened with many challenges that come in the way of their growth. The most important are accessing finance at the right cost and getting the support of labour at the right time. Here are some of the other common challenges that this business sector has to deal with in order to increase their efficiency and output.

  • Trained talent migrates from SMEs to higher paying jobs as soon as a lucrative opportunity comes along, which undermines the firms’ stability.

  • In order to survive in the market and stay relevant, SMEs tend to drop the prices of their services and products below profitable levels. This shakes up the market prices for competitors too and leads to overdependence on existing clients.

  • Unlike bigger firms, who have ready cash to fall back on, SMEs have to rely on their working capital to fund every need of the hour. Sometimes this is not enough given their recurring expenses. This is especially a challenge when it comes to investing in new technology to fuel their growth.

  • Another bigger point of contention for start-ups is that they have to eye growth keeping their USP intact. Maintaining the same quality of goods and services while they grow into bigger firms is difficult for most start-ups as they don’t enjoy the finances required for rapid expansion, be it hiring best-in-class talent or buying state-of-the-art equipment.

SMEs can deal with these challenges with adequate and timely funding, which government loans aim to provide to different sectors. As a business owner, here are the top government business loan options you can choose from.

1. MSME government business loan scheme

The Indian Government launched the MSME business loan scheme as a working capital loan. As an MSME, you can get a loan sanction of up to Rs.1 crore within just 59 minutes. The best part is you get this loan at 8% rate of interest, keeping the repayment easy on your pocket. A reservation of 3% is available for women entrepreneurs, so as to offer a quick sanction to the increasing number of women helming their own business today.

When applying for the loan, follow these basic steps:

  • Enter your business’s GST Identification Number

  • Upload the income tax returns for your business in XML format

  • Upload the bank statements of your business account for the last six months in PDF format.

  • Enter the director/owner’s details for your business. This will include all details related to personal, educational, and ownership criteria.

  • Submit the application to enjoy an on-principle sanction within 59 minutes!

Additional Read: MSME Registration Process

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2. MUDRA business loan

Established by the current government, Micro Units Development and Refinance Agency (MUDRA) has envisioned the idea of ‘funding the unfunded’ and put it into action with a funding scheme. Small business entities and start-ups are given financial support in the form of low-cost credit. MUDRA Loans are financed through public and private sector banks, co-operative societies, small banks, scheduled commercial banks, and rural banks.
Broadly, any MSME operating in the manufacturing, trading and services sector is eligible for the MUDRA loans. Your firm can avail funds via the government business loan scheme under three subheads.

- Sishu Loans up to Rs.50,000
- Kishor Loans up to Rs.5,00,000
- Tarun Loans up to Rs.10,00,000

To facilitate easy funding, the government has recently introduced the MUDRA Card. This innovative product provides a working capital facility as a cash credit arrangement. This card is given to you as a debit card against your MUDRA loan account. Based on your sanction, you can withdraw funds from your MUDRA loan account multiple times. Until and unless you use a portion of the sanction, you will not be charged interest on it. You can use your MUDRA card for POS purchases or to withdraw cash from any ATM across the country.

Additional Read: Pradhan Mantri Mudra Loan Interest Rate

3. Credit guarantee fund government business loan scheme

CGTMSE has been in action for 18 years now. Since its inception, the Credit Guarantee Fund Trust for Micro and Small Enterprises has been facilitating collateral-free loans for MSMEs. Any scheduled commercial bank and regional rural bank can become a part of the scheme by empanelling itself as a lending authority. The agency sanctions loans to eligible Micro and Small Enterprises basis their credit standing via the lending agencies in question.
The scheme provides working capital loans up to Rs.10 lakh and has provisions for bigger sanctions as well. However, to get approval for an amount exceeding Rs.10 lakh, you will need to mortgage your business assets and land.

4. National Small Industries Corporation Subsidy

Established in 1955, NSIC offers MSMEs two kinds of funding benefits: raw material assistance and marketing assistance. Any business qualifying as a micro and small enterprise having EM Part-II (Optional)/ Udyog Aadhaar Memorandum (UAM) is eligible to register for this government business loan scheme under its Single Point Registration Scheme (SPRS).
Once you qualify, you can opt for the raw material assistance scheme, where funding for both indigenous and imported raw material is covered. Under the marketing support, you can avail funds and use it to enhance your competitiveness and the market value of your offerings. The NSIC also overlooks the functioning of an MSME and supports it in its endeavour to enrich production and quality.

Additional Read: Udyog Aadhar Free Registration

5. Credit Link Capital Subsidy Scheme

This government business loan scheme funds technological upgradations. Under the varied facets of the scheme, you can access finance to enhance your technology and equipment. You can use the funds from your sanction to undertake a revamp related to numerous processes for your business, like manufacturing, marketing, and supply chain.
Through this scheme, the government plans to reduce the production cost borne for creating and providing goods and services by small and medium enterprises. This will pave the way for a more competitive local and international market ecosystem.
Under this scheme, you can get an upfront 15% capital subsidy for your business. However, the maximum amount you can avail as subsidy is capped at Rs.15 lakh. In order to be eligible for a loan under this scheme, you need to apply as a sole proprietorship business, partnership firm, and co-operative or private and public limited company.

The way ahead

As you can see, government loans for MSMEs and SMEs cover the gamut of needs, but come attached with several prerequisites and caps on the loan amount. In order to avail a fast sanction of a collateral-free loan via an easy, online application, you can also look towards business loans offered by reputed lenders.
Lenders like Bajaj Finserv offer you a set of customised funding options solely dedicated to SMEs and MSMEs. You can avail an Equipment and Machinery Loan to get funds up to Rs.20 lakh to buy or lease machinery. Alternatively, you could borrow the SME Loan created for small and medium enterprises that features simple eligibility criteria and the same limit of up to Rs.20 lakh.
One of the most rewarding features of these loans, apart from their competitive rate of interest, is the Flexi Loan facility. This facility allows you to withdraw from your sanction multiple times, in parts. This helps you address frequent or unpredictable business needs without a hassle. Since you pay interest only on what you use, this facility helps you save too. You can also make part-prepayments at no cost and even redraw the repaid amount, should you need it.
Additionally, you may choose to pay interest-only EMIs. This option helps manage your cash flow better by allowing you to repay the principal at the end of the tenor. This way you save up to 45% on your EMI and use your revenue to repay the loan later. To apply for this customised loan instantly online, check your pre-approved business loan offer and get the funds you need to spur your SME towards growth.


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