What are the loan schemes in government India to start a business?

India is a growing economy. Its primary income comes from the service sectors, though. Only 17% of Indian GDP accounts for the manufacturing industry. During covid, industries have shut down due to a lack of market and funding.    It’s not possible to run a business, however small it is, without the lack of proper money and cash flow. Many industries that have shut down have taken loans from the banks, named Emergency credit line guarantee scheme (ECLGS). Though sustaining was not feasible in the long run, without generating any profits, it was not a promising avenue for the banks.    The government of India has tried many ways to encourage new-age budding entrepreneurs to start a new business along with new ideas. Though India’s ease of doing business ranks has improved significantly from past years, the situation still needs much improvement.    An economy’s growth in many ways depends upon its small industries. The heavy industries take time to flourish and need significant support from the government. In contrast, the micro, small and medium industries need the initial push, and that’s why the government runs different loan schemes to encourage the masses to create new businesses.   MSME plays a vital role in balancing the income inequality and imbalance of the country’s economy. It also helps to counter the employment problem of the economy. Most of the MSMEs help the local pool of talents get a job and help GDP rise. At present, the MSME sector employs around 11 crore jobs and caters to the economic needs of several families.    It plays a pivotal role in contributing to the growth of the country. It accounts for 8% of the economy’s GDP and around 2/5th of our exports. It is a part of the organised and unorganised sector as well. But like any other business, it needs the right kind of financial outlay and support from the government. The support can include infrastructure support as well as another cash-flow related issue. 

Different business loans by the government:

MSME (micro, small and medium enterprise) is one of the biggest job creators of our economy. It plays an integral role in boosting the economy. Simultaneously different governments tried to strengthen the MSME sectors from time to time. Various government-backed loan schemes and credit guarantee schemes work in tandem with the government’s plan of make in India project. It also helps to make new start-ups and different business opportunities. 

1. MSME loan in 59 minutes:

In any public sector bank or private bank, things take time to process and often, the needy become agitated about when they will get the loan. To address this problem, the government has started MSME loans in a 59 minutes scheme. Under this scheme, any eligible MSMS can get 1 lakh to 5 crore loan in 59 minutes. Of course, some criteria need to be fulfilled, and they can also be availed through public sector banks and NBFCs. The banks have been given guidelines to give this loan in stipulated time only with minimal documentation. The question is which businesses or enterprises are eligible for this and how the eligibility is decided.   ● Repayment capacity. ● Existing credit or current account maintained with the same bank. ● Revenue of the business. ● The benefits of this scheme are, ● The loan process is super quick, with very little documentation. ● It is a technology backed loan scheme without human intervention in the last stage of the approval. ● The loan process always needs a lot of safety and security of details; thus, any data is kept securely. 

2. Credit Guarantee fund scheme for micro and small enterprises (CGFMSE):

A credit guarantee scheme fund trust for micro and small enterprises was launched to facilitate loans to MSME and strengthen the sector. The loan can be availed by the existing businesses and new ones also. It has a fund of 200 lakhs, and particular preference is given to women. SIDBI maintains it, and loans can be given to public sector banks.   Eligibility for the scheme: Any business engaged in the service or manufacturing sector can get this loan except retail, agriculture, SHGs and training institutes. Feature of the loan:   ● This loan can be availed up to 2 crores for starting or working capital for entrepreneurs. ● The guarantee covers up to 75% of the credit up to 1.5 crores. ● For micro-entrepreneur, the guarantee is provided up to 85% for micro-enterprises. ● For MSME retail, the guarantee cover is 50% of the 50 lakhs.

3. Pradhan Mantri MUDRA yojana (PMMY)

Mudra stands for micro-units development and refinances agency ltd. It provides a credit guarantee for all the PSB under this scheme. The MUDRA institution can guarantee anyone availing of a loan of up to 10 lakhs. Upon becoming the loan account NPA, it will give the money to the banks.    It supports three types of loans, and every loan has certain limits. Under “Shishu”, a loan credit guarantee is provided for up to 50000, and the interest rate is 1% to 12%. Under the “Kishore” scheme, loans from 50000 to 5 lakh are guaranteed, with an interest rate of 8.6 to 11.15 per annum.  And under the “Tarun” scheme, loans from 5 lakhs to 10 lakh are guaranteed, with interest being charged at 11.15% to 20% per annum. However, the bank has the ultimate discretion in deciding the interest.   Who can get the loan?   It is a business loan to small vendors, traders, and shopkeepers who need to set up a new business and need working capital.

4. National small industries corporation:

The government tries to help small businesses under national small industries corporation subsidy with the preliminary plan to provide financial assistance for marketing and raw material.

Tenders: Under the marketing programme, the small industries should get access to tenders without any extra cost.

Security deposit: Any security deposit is exempted for small scale industries to avail of any financial help.

Land and building: The loan is provided for any land and building assistance amount not exceeding 25 lakh. 

5. SIDBI Make in India soft loan fund for MSMEs:

It was launched in 2015, SMILE (SIDBI Make in India soft loan fund for MSMEs) is governed by SIDBI to provide soft loans for working capital to MSMEs. It is added on one loan to existing business customers. The rate offered is 8.25% onwards for safe paying of existing accounts maintained.

Any business with combined outstanding credit not exceeding 25 crores can avail of the scheme, and a loan is provided for 20% of the total outstanding amount.

6. Stand up India:

It is a flagship scheme to provide loans to SC/ST category and women entrepreneurs. It includes loans from 10 lakh to 1 crore. Any enterprise engaged in manufacturing or service is eligible for this loan. The interest is decided by banks only, taking the current bank rate into account. The loan is expected to cover 3/4th of the project cost. 

Conclusion:

Be it a small industry or a big conglomerate, any business without government support cannot go unaffected in the long run. Most of the time, small businesses are affected more than anything. But in due course of time, the Indian government realised the support it needed to provide to the small industries would determine the future of our business scenario. Depending upon the service sector will not be a staircase to success.

FAQ’s

Ans:    What are the documents required for an MSME loan?

Ans:   ● GST documents ● Bank account statements ● Credit report ● Company ownership details. ● KYC details

Ans: Who can get MSME loans?

Ans:   Private companies or sole proprietors can get loans provided they are engaged in business for more than three years.

Ans:   Which bank is best for a start-up for India?

Ans:    There are a number of banks which provide start-up loans and have different departments for this. Like Axis bank Start-up, HDFC bank start-up, ICICI i-startup.

Ans:    Is it good to start a business with a loan?

Ans:   Yes, it is a good decision to start a business with a loan compared with other methods like shared capital and all.