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Top 5 Government sanctioned business loan schemes in India

[ecis2016.org] In this story we focus on business loans and outline the top 5 types of loans in India available for MSMEs

Business Loans: Meaning and uses

Business loans are provided by lending institutions to companies/industries/enterprises. These loans seek to help small scale industries and MSMEs who do not always have ready investors, or the capital to commence or continue business operations. Business loans by the government provide small to large sums of money by evaluating the net worth and capacity of enterprises to make repayments.

Entrepreneurs can also avail of loans for businesses to expand their company or meet hard to cover expenses. The government is actively launching lucrative government business loan schemes to help MSMEs, which make up about 8% of the country’s GDP. 

MSMEs have become a reliable source of employment for thousands of Indian citizens. Therefore, the government is supporting the emergence of new MSMEs and providing them with the assistance required to establish their enterprise or company.

Who can provide business loans in India?

Most reliable business loan schemes are launched by the Government of India. The government loan is processed by public and private lending institutions. 

In the public sector, government banks can give business loans to all applicants, depending upon their eligibility. In the private sector, NBFCs provide enterprise business loans after meeting their eligibility criteria. Various NBFC and public bank apps have been created to make the process easier and seamless. 

Individual lenders can also lend money for business purposes but they are mostly unreliable and charge high interests as compared to the market rates. Public and private banks along with NBFCs are the best option when one wants a business loan. If you’re wondering how to get a loan to start a business from the government, keep reading.

Top 5 types of loans in India available for MSMEs

1. MSME Loan or PSB Loan

The MSME loan scheme is specially designed for small-scale industries to let them flourish with government assistance. This loan scheme is also called a PSB Loan. 

The special feature of this type of loan in banks is that the approval process completes in 59 minutes only. This feature aims to provide fast track loans to companies and industries. The Government of India came up with the idea of this loan that has helped countless companies source their capital in no time. 

The PSB loan scheme allows interested MSMEs to receive loan amounts ranging from Rs1 lakh to Rs5 crores depending on certain conditions. The interest rate of these loans has been fixed at 8.50% for public or government banking institutions and NBFCs (Non-Banking financial companies). The entire process of a loan application, approval, and loan credit requires little documentation and can be conducted virtually, with the borrower only being present before the loan sanction.

Since the loan requires the banks and NBFCs to take a significant financial risk, certain eligibility criteria which determine if a business can avail of this loan scheme. The eligibility for availing these loans depends on the following factors:

  • Income/Revenue generated by companies 
  • Assurance that the enterprise would be able to make all repayments  
  • Any existing or continuing credit facilities availed by the company
  • Additional restrictions placed by the lending institution

The final loan amount that can be sanctioned will also be decided on these factors and the ones added by the lending institutions.

2. Pradhan Mantri MUDRA Yojana (PMMY)

MUDRA loan is a recently introduced popular loan scheme. MUDRA stands for Micro Units Development and Refinance Agency Ltd. This special government loan scheme is involved in offering refinancing support to Banks and NBFCs. The sole reason for the government’s assistance is to provide Banks and NBFCs with the incentive to lend capital to MSMEs. This digitised system involves the issuing of credit and debit cards with the loan amount for easy transactions.

The maximum loan amount provided by lending institutions under this scheme is INR 10 lakhs. The PMMY MUDRA loan scheme has three divisions named ‘Shishu’, ‘Kishore’ and ‘Tarun’, marking the position of the companies on the industrial scale. The maximum loan amount each category is eligible for has been set by the scheme. Here is a brief breakdown of the loan ranges which can be availed by each group:-

  • Shishu:- Maximum loan of Rs 50,000 with a yearly interest rate of 1-12%
  • Kishore:- Rs 50,000 to Rs 5 lakhs with a yearly interest rate of 8.6-11.15%
  • Tarun:- Rs 5 lakhs to Rs 10 lakhs with a yearly interest rate of 11.15-20% 

Currently, the MUDRA loan services are extended to only a few sections of people. Here is a list of people who can avail this gov loan scheme:-

  • Vendors
  • Grocers
  • Shopkeepers
  • Commercial vehicle
  • People requiring equipment for micro-unit units

3. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)

GCSE is a unique loan scheme which lends money to enterprises without any collateral. This scheme is also the brainchild of the Government of India (‘GOI’). All MSMEs can avail this scheme regardless of their tenure as a registered company. The Ministry of MSMEs and Small Industries Development Bank of India (SIDBI) had founded a separate Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to regulate and provide this business loan scheme. 

The CGTMSE funding scheme offers a bigger ceiling limit for MSMEs with a maximum loan amount of Rs. 2 crore. Women entrepreneurs receive special benefits. The Guarantee Cover will provide security for a maximum of 85% of the loan amount availed by the borrower. There is also a yearly fee that needs to be provided to the Trust. The division of the fee is mentioned below:-

  • Up to Rs 5 lakh: 0.75% per annum
  • Rs 5 lakh but to Rs 1 crore: 0.85% per annum
  • Rs 1 crore to Rs 2 crore: 1% per annum

There are certain eligibility criteria which decide the loan amount and the eligibility of the application. Here are the two sections that can avail this government added business scheme:-

  • Manufacturing activity
  • Service activity

4. National Small Industries Corporation (NSIC)

NSIC is a special ISO certified section which strives to provide all-around support to MSMEs in India. The enterprise is run by the government and aims to build a wider network of successful MSMEs. Their core function is to provide support and recommendations in various areas like finance, marketing, technology and other allied services. NSIC has introduced numerous schemes to assist the development of MSMEs. Some of the schemes provided exclusively by NSIC are:-

  • Marketing Support Scheme

Under the Marketing support scheme, there are two future divisions of Consortia and Tender Marketing. These marketing schemes are extremely important for enterprises and their only hope to survive in the extremely competitive market. The scheme offers information on upcoming trade events, exhibitions, tech fairs, etc. It also keeps the MSMEs updated with reports on marketing trends and strategies.

  • Credit Support Scheme

The Credit Support Schemes talks about the financial assistance that NSIC can provide to MSMEs. This scheme allows industries and enterprises to source their raw material and employ their marketing strategies. This scheme gives them financial support and also sets up syndication of banks to MSMEs.

5. Credit Linked Capital Subsidy Scheme (CLCSS)

CLCSS has been launched by the Ministry of MSMEs. This scheme is concerned with the technological development of MSMEs. The main objective is to modernise the enterprises’ systems and upgrade them with the power of the latest technologies. The highlight of this scheme is the 15% subsidy provided for the purchase of technologically advanced industrial machinery. There is a ceiling limit on the total subsidy amount to this government subsidy loan for business, which now stands at Rs 1 crore.

The CLCSS contains some amazing benefits which allow MSMEs to invest in expensive machinery, and cut down labour costs and time of manufacturing. In semi-urban areas especially, modern mechanisation can ease the burden of enterprises that have ready access to urban centres. Even rural industries can benefit a lot from these schemes because they provide a part of the humongous expenses required to buy modern and technologically advanced machinery and plants.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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