The Indian MSME sector comprises around 63 million companies contributing 30% to the country’s GDP, 45% to the manufacturing sector, and 40% to exports. According to government data, they employ over 113 million people. In a way, MSMEs solve several crucial issues in the country, including unemployment, poverty, regional imbalances, income inequality, etc. Aiming to encourage the MSME sector of India, the Indian government runs several schemes to sanction loans to start-ups. If you plan to set up a business, you can borrow a government Business Loan through these schemes and fulfil your requirements.
Below, we will discuss how to get a loan to start a business from the government.
Top Government Loan Schemes for Start-Ups in 2023
The Indian government offers several Business Loan schemes for start-ups and MSMEs. Let’s talk about the top government loan schemes to set up a new business in India or expand an existing enterprise:
- Bank Credit Facilitation Scheme
Headed by NSIC, the National Small Industries Corporation, the Bank Credit Facilitation Scheme aims to provide financial support to MSME units. The government agency has partnerships with several loan providers to meet the financial needs of MSMEs. The repayment term ranges from 5 to 7 years but may extend to 11 years in special cases.
- Pradhan Mantri Mudra Yojana (PMMY)
MUDRA (Micro Units Development and Refinance Agency) launched the PMMY scheme in 2015 to offer loans to different kinds of activities in the trading, service, and manufacturing sectors. Repair shops, vegetable vendors, shopkeepers, machine operators, artisans, etc., can obtain loans under this government Business Loan scheme under three categories. These include Shishu loans up to Rs 50,000, Kishor loans from Rs 50,000 to Rs 5 Lakh, and Tarun loans from Rs 5 to 10 Lakh.
- Credit Guarantee Scheme (CGS)
Both existing MSMEs and new start-ups can avail of loans under this scheme to invest in manufacturing or service-related activities. However, it excludes agriculture, self-help groups, educational institutions, retail trade, etc. The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) heads this scheme to offer MSME loans up to Rs 2 Crore.
- Standup India
Small Industries Development Bank of India (SIDBI) launched this scheme in 2016 to extend loans to MSMEs in the manufacturing, services, and trading sectors. The project provides loans ranging between Rs 10 Lakh to Rs 1 Crore with a repayment tenure of up to 7 years and a moratorium period of up to 18 months.
- Sustainable Finance Scheme
SIDBI also heads the Sustainable Finance Scheme to offer loans to companies in green energy, renewable and non-renewable energy, technology hardware, etc. This scheme’s primary aim is to support the value chain of energy efficiency, cleaner production and eco-friendly development projects.
- Psbloansin59minutes.com
It is a digital platform where aspiring entrepreneurs can obtain a loan for business. Based on your loan requirement and eligibility, the platform offers a loan amount of up to Rs 10 Lakh under MUDRA and up to Rs 5 Crore under the MSME loan scheme. It also provides other loans.
Stepwise Process to Apply for a Government Business Loan
The Indian government provides online provisions, allowing MSMEs to register for loans, including Stand Up India, MUDRA, SIDBI loans, etc., via the Udyami Mitra platform. It is a unique initiative to provide credit to MSMEs, let them connect to authorised lenders, apply for loans, and track their status. Moreover, you can find an appropriate scheme suitable to your funding requirement and submit the application at an authorised NBFC branch office or website. The online application process for MSME loans includes the following:
- Visit the Udyami Mitra Platform or the selected lender’s website.
- Create an ID by entering your name, contact details, and OTP received on your registered mobile number.
- Enter the loan amount and fill out an application form with your personal and professional details.
- Provide your business plan, enterprise name, business address, occupation details, financial performance, etc.
- Fill out your bank details.
- Scan and upload the required documents.
- Accept the terms and conditions to initiate the loan process.
- Accept the loan offer received via email to get disbursal quickly.
Things to Consider When Applying for a Business Loan
Applying for a loan for business is a complex process that needs a lot of research, consideration, and planning. Here are a few things you must take into account:
- Loan Requirement:
Based on your business nature and plan, evaluate the associated expenses and assess your loan requirement. Although many loan companies provide ample loan amounts, you must borrow only what you need. Overborrowing will eventually increase your debt burden and make repayment challenging. Use an eligibility calculator to decide on an adequate loan amount and apply accordingly.
- Collateral Requirement:
Some Business Loans are secured, while others are unsecured. Secured loans require the security of an asset. In case you fail to repay the loan, the lender can repossess that asset to recoup the outstanding balance. If you are ready to lose the asset when things don’t work in your favour, a secured loan would be better, as it comes at a lower interest rate. However, if you don’t want to put your assets at risk, apply for an unsecured Business Loan through reliable NBFCs that does not require any collateral, guarantor, or security but comes at a higher interest rate.
- Interest Rate:
The interest rate is a crucial factor to consider when applying for a government Business Loan. You must repay the loan amount to the lender along with the interest rate. However, a higher interest rate means expensive loan costs, longer repayment tenure, and bigger EMIs each month. Therefore, compare loan offers from various lenders to get a loan plan at the lowest interest rate.
Besides these, repayment terms, additional charges, end-use restrictions, eligibility conditions, and documentation requirements are other crucial factors to consider when applying for a loan for business. Compare the various government schemes and loan plans to opt for one that best suits your loan requirement. Those entrepreneurs requiring funding for their already operational business can apply for an unsecured Business Loan from reputed lending institutions.