Small businesses are divided into three different categories by the Government of India. These three categories are Micro, Small, and Medium Enterprises (MSMEs). To start such a business, often individuals need to take loans. Therefore, knowing about government loan schemes is integral.
The details of MSMEs are given in the Micro, Small, and Medium Enterprises Development Act, 2006. The latest definition of Micro, Small and Medium enterprises as revised by the Government and applicable with effect from 01/07/2020 is as under:
- Micro Enterprises: A business entity whose investment in Plant & Machinery does not exceed Rs. 1 Crore and whose Annual Turnover does not exceed Rs. 5 Crores.
- Small Enterprise: A business entity whose investment in Plant & Machinery does not exceed Rs. 10 Crores and whose Annual Turnover does not exceed Rs. 50 Crores.
- Medium Enterprises: A business entity whose investment in Plant & Machinery does not exceed Rs. 50 Crore and whose Annual Turnover does not exceed Rs. 250 Crores.
Importance of MSME
MSMEs are critical to an economy's growth. MSMEs are always a good answer to major economic issues, including poverty, unemployment, income inequality, regional imbalances, and so on. It guarantees that local development is balanced and that income equality is maintained. This industry is responsible for giving jobs to millions of people in our country and tapping local talent, which contributes significantly to the country's GDP.
- Currently, the MSME sector is responsible for the creation of approximately 11.10 crore jobs in India. As a result, this industry is also recognised as India's growth engine.
- MSMEs make a handsome contribution to the country's GDP as it accounts for 6-7% of the Manufacturing Sector GDP and roughly 25% of the Service Sector GDP.
- MSMEs also account for roughly 40% of total exports and 45% of the country's industrial output.
- There are approximately 40 million registered and unregistered Micro, Small and Medium Enterprises (MSMEs) in India.
- MSMEs are found in both the organised and unorganised sectors.
However, like all start-up enterprises, an MSME organisation confronts several challenges in securing the correct kind of financial backing for a variety of operations, including obtaining infrastructure to support ongoing business activities or expanding the business or setting up new business.
What are the start up business loan by indian government?
Individuals, business owners, and MSMEs in the trading, manufacturing, and service sectors are the primary beneficiaries of government business loans. There are a variety of government loan schemes from which to choose, depending on the type of the firm and its needs. Some of the major government schemes for startup companies and MSMEs are as follows:
1. Pradhan Mantri MUDRA Yojna (PMMY)
MUDRA – The word MUDRA stands for Micro Units Development and Refinance Agencies Limited.
MUDRA loans were started to finance micro business units. Under the Pradhan Mantri MUDRA Yojana (PMMY), MUDRA provides refinancing support to banks and Non-Banking Financial Companies (NBFCs) for lending to micro units with loan requirements of up to INR 10 lakhs. MUDRA split the loan into three categories under PMMY: Shishu, Kishore, and Tarun, depending upon the stage & size of the business.
The government loan can be given to new businesses or for the growth & development of existing businesses. The definition of these loans is given hereunder:-
Shishu - It covers loans up to Rs 50,000/-
Kishore -It covers loans above Rs 50,000/- and up to Rs 5 lakh
Tarun - It covers loans above Rs 5 lakh and up to Rs 10 lakh
Criteria for eligibility and other important points of PMMY
- Age: The person doing/starting a business should be 18-65 years old.
- Applicant should not be a defaulter of any earlier loan, i.e. their past track record about repayment of the loan should be clean.
- Nature of Business: Manufacturing or Trading or Service sector. It will cover small vendors, shopkeepers, workshops or repair shops, food processors, caterers, mini truck and auto operators, artisans, small industries, other small service providers, etc.
- Type of Loan: Term Loan or Working Capital Loan
- Repayment Period: 3-5 years for Term Loan. Earlier repayment is also allowed without any prepayment penalty.
- Processing Fees: Nil for ‘Shishu’ and ‘Kishore’ Loan and 0.50% of the loan amount for ‘Tarun’ Loan
- Security: No collateral security or third-party security is required.
- Rate of Interest: Usually, it is in the range of 8.50% per annum to 12% per annum depending upon the type of loan. Interest rates may differ from bank to bank depending upon their cost of funds and MCLR.
2. Credit Guarantee Trust Scheme for Micro and Small Enterprises (CGTMSE)
The Government of India has launched a lending scheme that allows businesses in the MSME sector to get capital through loans without putting up any collateral security to the bank. The government loan scheme can be given to both new and existing businesses. The Credit Guarantee Fund Trust was established by the Ministry of MSMEs and Small Industries to carry out the CGTMSE scheme. Working capital loans and Term Loans of up to a total sum of Rs 200 lakhs are available under this scheme, with preference given to qualifying women entrepreneurs. This scheme is operated through all the banks in India.
Criteria for eligibility
Businesses engaged in manufacturing activity, retail trade, educational institutions, self-help groups, and training institutions can avail of this government loan scheme. Moreover, businesses in the service sector are also eligible to avail of funding under this business loan government scheme. This plan is open to all enterprises, including sole proprietorships, partnership firms, private limited companies, public companies, and other legal entities.
3. MSME business loan in 59 minutes
In September 2018, the government introduced a new business loan scheme, namely MSME business loan, in 59 minutes. One can make an application for this loan on the official website of the Govt. This scheme was introduced for individuals who want to expand their existing business. Features of this government business loan scheme are:
- MSMEs can avail of a loan amount from 1 lakh to 5 Crore within 59 minutes.
- The rate of interest is 8.5 %
- Minimum documents are required to avail of this loan.
- Last 6 months bank statement
- KYC details
- GST and Income tax Returns for verification
- Ownership proof (or Lease Agreement, if business premises is on lease)
Important points to be considered for sanction of government loan
The following points are kept in mind while giving a government loan in such a scheme:
- What is the income/revenue of the borrower?
- How much is the borrower capable of paying the loan?
- What are the borrower's existing credit facilities?
Benefits of this government loan scheme:
- It is a quick process.
- Minimum documents are required.
- The entire data is kept safe and secure
4. Stand up India Scheme for candidates of SC/ST categories and women entrepreneurs
Stand up India Scheme is meant for people belonging to SC/ST category and women entrepreneurs. The scheme involves providing start-up business loans by the Indian Government. The eligible candidates can file their application online on the official website of the Govt. www.standupmitra.in. The eligibility criteria for availing loan under this government loan scheme are:
- The minimum age should be 18 years.
- Applicant should not be a defaulter of any earlier loan, i.e. his past track record about repayment of the loan should be clean.
- The applicant should belong to SC/ST category or should be a woman entrepreneur.
- The business should be a greenfield project as per the definition of the Govt.
- If the applicant is a partnership firm or a Private Limited company, the person belonging to SC/ST category or woman entrepreneur must hold a minimum of 51% share in such a business entity.
Other important points of loans for Stand up India Scheme:
- The amount of the loan is between Rs. 10.00 Lakhs to Rs. 1 crore.
- The loan can be given for working capital needs, a term loan, or both, but the total amount shall not exceed Rs. 1 Crore.
- The term loan repayment is a maximum of up to 7 years, including a moratorium period (generally 1 year).
- The loan can be given either under the guarantee of the Govt. under the CGTMSE scheme or by way of collateral security of any other property.
- The interest rate is normally MCLR 3.50%, depending upon bank to bank.
5. Loans by National Small Industries Corporation
This is a Government of India Corporation set up by the Ministry of MSME to provide financial, marketing, technology support, and other related areas for setting up the development and expansion of MSMEs. The purpose of this corporation is to encourage the growth of the MSME sector in India mainly through two types of govt business loan schemes – (a) Marketing Support scheme and (b) Credit Support Scheme (for procuring raw material). It provides credit facilities directly to MSME as well as through arrangements with other banks.
6. Udyogini Scheme
It is a government loan scheme meant for women to set up businesses, i.e., promote women entrepreneurship in India. The funding for starting a business under the Udyogini scheme is done by Women Development Corporation set up by the Govt. of India. The maximum amount of loan given under this scheme is up to Rs.15 Lakhs only. There is no collateral security required for availing any loan under this scheme (security free loan). Moreover, there is no processing fee. The eligibility criteria to get a loan under this scheme is as under:
- The age of the woman should be between 18 years to 55 years.
- The total annual income of the woman's family should not be more than Rs. 15 lakhs.
- But there is no limit of income for a widow or a physically disabled woman.
7. Credit Link Capital Subsidy Scheme (CLCSS) for Technological Advancement by MSMEs
This is a subsidy scheme for MSMEs for upgrading their technologies by purchasing the latest machinery, tools & equipment, etc. The Govt. provides a subsidy of 15% of the capital investment in Plant & Machinery etc. for technological advancement in the factory. This program helps small firms modernise their processes by providing funding for technical upgrades. Manufacturing, marketing, supply chain, and other functions inside the firm can all benefit from technological advancements.
The government's CLCSS scheme aims to lower the cost of producing goods and services for small and medium-sized businesses. This allows them to establish competitive prices in both domestic and international markets. The Ministry of Small-Scale Industries oversees the program. For eligible enterprises, the CLCSS provides a 15% up-front capital subsidy. However, the maximum amount that can be received as a subsidy under the scheme is limited to Rs. 1 Crore. But it is a great help to small and medium enterprises to produce high-quality products using machinery & equipment of latest technology, particularly those operating in rural and semi-urban areas with old machinery.
This article is meant for all those who are either doing their small or medium businesses and want to grow further. It can be done by availing Government loan under the MSME category. The government provides different types of government loan schemes that are formulated with keeping in mind women entrepreneurs and persons belonging to SC/ST categories such as Udyogini and Stand up India Scheme. Therefore, understanding the purpose of such loans and eligibility criteria can ease the process of availing these loans.
We hope the article has helped you with understanding all the different government business loan schemes. For more updates, download the Khatabook App.