Top 5 Government Business Loan Schemes In India

The government introduced business loan schemes to provide funds and credit facilities to individuals, startups, business owners, self-employed professionals, and small and medium-sized enterprises (MSMEs) in the trading, manufacturing, and services sectors.  

The government, with the help of banks and non-banking financial companies (NBFCs), has started many loan schemes. You can choose a scheme based on your business and needs. This article discusses the schemes, features, and eligibility criteria of business and MSME loans offered by financial institutions under government loan schemes. 

Top 5 Government Business Loan Schemes in India - Highlights 

 

1. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFSMSE) 

The CGFSMSE is a government program that helps small businesses get loans. It guarantees these loans to banks, so the banks are more willing to lend money without asking for collateral. 

Who can get a loan? Small businesses that make things or provide services can apply. 

How much can you borrow? You can borrow up to ₹2 crore. 

Interest rate: The interest rate varies based on your business's perceived risk. 

Fees: You'll pay a fee of up to 2% per year for the guarantee and 1.5% per year for the service. 

Benefits: Because of the guarantee, banks are more likely to lend money to small businesses, even if they don't have a lot of assets. This streamlines the process for small businesses to secure the financing needed to expand. 

2. Mudra Loans: Pradhan Mantri Mudra Yojana (PMMY) 

Mudra Loans is a government program that helps small businesses get loans. The government gives money to banks and other lenders, who then loan it out to small businesses. 

Who can get a loan? Small businesses that are not corporations, like sole proprietorships and partnerships, can apply. 

How much can you borrow? The amount you can loan is determined by how big your business is: 

• Shishu: For new businesses, up to ₹50,000. 

• Kishore: For established businesses, ₹50,000 to ₹5 lakh. 

• Tarun: For growing businesses, up to ₹20 lakh (increased from ₹10 lakh in 2024). 

Down payment: You need to pay 20% upfront for loans between ₹50,000 and ₹10 lakh. 

Loan term: Loans are for 3 to 5 years, with a possible grace period of up to 6 months. 

Interest rate: Your business's risk profile will determine the interest rate. 

Fees: There's a processing fee of up to 0.5% for loans up to ₹10 lakh. 

Benefits: Mudra Loans are great for new businesses and small businesses. The application process is simple, and the government is especially focused on helping women entrepreneurs. 

3. NSIC Subsidy Schemes 

The National Small Industries Corporation (NSIC) helps small businesses in many ways. They offer loans, money for starting a business, guarantees, help with selling products, technical knowledge, and other things to help businesses grow and be successful. 

Who can get help? Small businesses that are reliable and can pay back their loans can apply. The rules might be different depending on the kind of help you need. 

Interest Rate: The interest rates depend on the type of loan and the lender. They are usually the same as other banks and can be negotiated based on your business. 

Loan Term: How long you have to pay back the loan depends on the type of loan and the lender. 

Benefits: NSIC offers many services, including buying materials, getting loans, help with selling, using new technology, testing products, and training employees. 

They also offer guarantees for loans, help with selling products overseas, help with going to trade shows, and training for new business owners. 

4. SMILE (SIDBI Make in India Loan for Enterprises) 

SMILE, a government program, facilitates the expansion of small businesses and their integration into the "Make in India" initiative. It offers loans with low interest rates to new businesses and businesses that want to expand using new technology. 

Who can get a loan? New businesses that make things or provide services can apply. Existing businesses that want to grow and modernise can also apply. 

How much can you borrow? You can borrow at least ₹10 lahks for equipment and finance, or ₹25 lahks for other purposes. 

Loan term: You have up to 10 years to pay back the loan, with a grace period of up to 36 months. 

5. Stand Up India Loan Scheme 

Stand Up India is a government program that helps people from Scheduled Castes (SC), Scheduled Tribes (ST), and women start new businesses. 

Who can get a loan? People who are at least 18 years old and belong to SC, ST, or women can apply for a loan. 

How much can you borrow? You can borrow up to 85% of the cost of your business project. Among the loan options are term loans, working capital loans, and overdrafts. The minimum loan amount is ₹10 lakh, and the maximum is ₹1 crore. 

Interest rate: The interest rate is determined by adding 3% to the MCLR. 

Security: You need to provide security for the loan, and the government will also guarantee part of the loan. 

Down payment: You need to pay 10 to 15% of the project cost upfront. 

Loan term: The loan is for up to 7 years, with a grace period of 18 months. 

Benefits: This program helps people from SC, ST, and women start businesses. The interest rate is low because the government helps pay part of it. Loans between ₹10 lakh and ₹1 crore can be very helpful for small businesses, especially in the target sector. 

Benefits of Government Business Loan Schemes 

Government business loan schemes offer many benefits for people who start businesses, especially small businesses.  

• Lower interest rates: Government loans often have lower interest rates than regular bank loans. 

• Flexible repayment: You can often pay back the loan on a schedule that works for you, and there might be a period when you don't have to make payments. 

• No need for collateral: Many government loans don't require you to use your assets as security. 

• Focus on specific businesses: Government loans can help businesses in certain industries, like manufacturing or agriculture. 

• Helps marginalised groups: Some loans are specifically for women, people from certain communities, and other groups. 

• Creates jobs: Government loans can help businesses grow, which creates jobs. 

• Government support: The government backing can make it easier to get a loan and get better terms. 

• Training and support: Some loans come with training and help to improve your business. 

• Helps with exports: Some loans can help businesses sell their products in other countries. 

What Affects Government Business Loans? 

• Credit history: A good credit history can help you get a loan with a lower interest rate, better terms, and a larger amount. 

• Business plan: A good business plan that shows your business model, how much money you expect to make, what you know about the market, and your plans for growth can help you get a loan. 

• Type of business: What kind of business you have and what industry it's in matters. Lenders prefer businesses that are doing well and growing. 

• Purpose of the loan: Whether you need money to start a business, expand, or for everyday expenses can affect the terms of the loan. 

• Government policies: Changes in government rules and the economy can affect how easy it is to get a government loan. 

Steps to Register for Government Business Loans 

1. Find a bank: Go to the website of a bank that offers government business loans. 

2. Create an account: Sign up on the bank's website and log in using a one-time password (OTP). 

3. Agree to the terms: Read and agree to the rules of the government loan program. 

4. Give your information: Enter your financial information and other details that the bank needs. 

5. Continue: Keep filling out the forms and upload any necessary documents. 

Documents Needed for Government Business Loans 

The exact documents you need for government business loans can depend on the specific program. Here are some common documents: 

• Filled out form: With your photo. 

• KYC documents: Proof of your identity, age, and address. Examples include a passport, voter ID, Aadhaar card, driving license, PAN card, or utility bills. 

• Bank statements: From the last 6 months. 

• Income tax returns: From the last year. 

• Business registration: Verification of your business's legal existence. 

• Business address and how long you've been in business: Proof of where your business is located and how long it has been operating. 

• Business PAN card: If your business has one. 

• Proof of belonging to a specific group: If you are from a Scheduled Caste, Scheduled Tribe, or Other Backward Class. 

• Other documents: Additional documents could be requested by the lender. 

Frequently Asked Questions 

1. What is the smallest amount I can borrow with a government loan?  

You can borrow any amount, no matter how small, from banks or NBFCs with government loans. The smallest amount you can get is through the Mudra Yojana under PMMY. However, the most you can borrow without collateral is ₹2 crore. 

2. How many government loan programs are for small businesses or startups? 

There are more than ten government business loan programs. Some of them are MUDRA Yojana, PSB loans in 59 minutes, CGTMSE, PMEGP, Credit Linked Capital Subsidy Scheme, National Small Industries Corporation Subsidies, Stand Up India Scheme, Credit Guarantee Fund Scheme, and others.   

3. How do I get a government loan to start a business?  

If your loan requirement is ₹10 lakh or less, a Mudra loan is an option. Most government loan programs for startups offer good interest rates and flexible repayment options. If you need more than ₹10 lakh, go directly to a bank or NBFC. NBFCs usually have higher interest rates than public or private banks. 

4. How can I avail myself of a government business loan in India? 

Small businesses seeking government loans can explore options like Standup India, PMEGP, Mudra Yojana, PMRY, Startup India, CGTMSE, CLCSS, or other relevant programs. 

5. Are there government loans for women entrepreneurs? 

The Indian government has special programs to help women start and run businesses. Programs like PMMY and Udyogini offer money and other benefits to women-owned businesses.