While large enterprises can easily raise capital from the market, it is a difficult task to get a business loan for small-sized companies when a business is just a concept or is in the initial stage. In the view of hardship faced by small and medium-sized enterprises to get a business loan, the government of India has launched government business loan schemes to provide funding to micro, small and medium enterprises (MSMEs) and young entrepreneurs. There are a variety of government business loan schemes to meet the personalized requirements of different businesses.
Types of Government Loan Schemes
The government wants to empower entrepreneurs by helping them raise funds to finance their business. Here are government loans schemes categorised to meet the specific needs of businesses:
Working capital loan
A working capital loan is a business loan that is offered to finance the daily business activities of an enterprise. These loans are not offered for the long-term needs of a business like investment and purchase of long-term assets. Working capital loans are classified into two categories – secured and unsecured loans. The loans can be availed to cover a company’s short-term operational expenses such as debt management, utility bills, inventory management, salaries for the workers, etc.
Corporate term loans
A term loan is a specific loan amount lent for a predefined repayment tenure with fixed or floating interest rates. It is one of the most important major loans for business expansion purposes. A term loan is often availed for the purchase of fixed assets like equipment and real estate for production and is expected to be repaid over a longer period. Term loans are offered by banks and NBFCs for entrepreneurs, MSMEs, business owners and large businesses for their working capital needs.
Pradhan Mantri Mudra Yojana (PMMY): Pradhan Mantri Mudra Yojana (PMMY) is headed by the Micro Units Development and Refinance Agency (MUDRA) and was launched to offer financial assistance to the micro-enterprise sector in the country for their all kinds of service, trading and manufacturing activities. PMMY loan ranges from Rs. 50,000 to Rs. 10 lakh under three categories – Shishu, Kishor and Tarun.
Bank Credit Facilitation Scheme: Headed by the National Small Industries Corporation (NSIC), MSME units can get funds for their business operation under this scheme. NSIC works with several banks like Yes Bank, Kotak Mahindra Bank, IndusInd Bank Ltd., Federal Bank, HDFC Bank, among others, to offer loans to small businesses and young entrepreneurs. MSME units can directly contact any of NSIC branch offices to submit the loan request.
Credit Guarantee Scheme (CGS): A business loan up to Rs. 100 lakh is offered under this scheme for new and existing MSME units involved in service and manufacturing activities, other than educational institutions, retailers, Self Help Groups (SHGs) and agriculture.
Stand-Up India Scheme: Stand-Up India scheme aims at empowering SC/ST and women startups. Under this scheme, Scheduled Caste (SC), Scheduled Tribe (ST) and Woman borrowers can apply for bank loans ranging from Rs. 1 lakh and 1 crore for starting a new business involved in service, trading or manufacturing activities. It has a 7-year repayment tenure with the moratorium period of 18 months.
Sustainable Finance Scheme: Businesses with projects engaged in green energy, renewable energy, green building and other labelling can get a business loan for starting or expanding their business. To qualify for this scheme, the ESCO must be an MSME or otherwise the unit to which it provides services should be an MSME.
Features & benefits for getting Government Business loans
These government loan schemes for startups and small businesses come with a host of benefits. Here are the features and benefits of government business loan:
- No need to offer assets as collateral or security to get government business loans.
- The government-backed loan schemes are exclusively designed for SME units and startups, hence the loan application process is simple and consumes less time.
- Government business loans have relatively flexible and longer repayment terms.
- instant approval and disbursement directly in your bank account.
- Multiple loan schemes for the specific needs of different segments of businesses.
How it works?
You need to take the following steps to apply for a government business loan online:
Step 1: Go through the list of lenders associated with the scheme and visit its official online portal.
Step 2: Sign up on the portal and login through a one-time password (OTP) sent on your registered number.
Step 3: Agree to the terms and conditions of the government loan scheme you want to get a loan under.
Step 4: Provide information about your venture and financial credentials.
Step 5: Proceed further to continue with the loan application and upload the required documents.
Government Business Loans: Eligibility Criteria
Eligibility criteria may vary from scheme to scheme and lender to lender. Here are the basic criteria you will need to meet.
- Any India citizen can apply for a government business loan
- Age of the loan applicant should be at least 18 years old at the time of application and maximum age 65 years
- Entrepreneur or someone having a convincing business plan
- Business types as mentioned above
- Objective and goals should be mentioned in the application
- Good credit score
- Appropriate annual turnover, if required
- The business plan should be neat and clean about sales and investments
Documents required for government business loan
While documentation may vary from scheme to scheme, here are basics documents required to get the government business loan:
- Business Plan
- Photographs: 2 copies (passport-size)
- Proof of age: Passport, PAN Card
- Proof of Identity: One of - PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License
- Business address Proof: One of - Postpaid Phone Bill, electricity bill, rent agreement
- GST identification number
- ITR returns for last 2 years
- Loan details
- List of company directors or partners (for partnership firms)
- Proof of Income: Bank Statement
- Bank proof: Cancelled/ scanned cheque, copy of the front page of your passbook
- Signature proof: PAN Card, Passport, Bank verified signature
Ques. Who can apply for a government loan?
Government business loan schemes are exclusively designed to individuals, start-ups, business owners, SME, MSEME, sole proprietorship and partnership firms, private limited companies, etc. Any Indian citizen aged above 18 years can apply for the loan. Established businesses should be running for a minimum of 2 years.
Ques. How can I get a government business loan
Go to the official website of the government-backed scheme and apply it online on one of the associated bank’s websites.
Ques. What is the minimum loan available under government business loan schemes?
The government business loan amount starts from as low as Rs. 10,000 per borrower.
Ques. Who can get a Mudra loan?
MUDRA stands for Micro Units Development and Refinance Agency. Mudra loan is offered for non-corporate, non-farm small/micro enterprises in the country engaged in service, trading and manufacturing activities. Mudra scheme is classified into three categories – Shishu, Kishor and Tarun. The loan amount offered under Shishu, Kishore and Tarun is up to Rs. 50,000, Rs. 5 lakh and Rs. 10 lakh respectively.
Ques. What are the processing charges on the Mudra loan?
No processing charges are applicable on Mudra loan.
Ques. What is a PSB Loan in 59 Minutes?
The Prime Minister of India introduced a digital platform psbloansin59minutes.com dedicated to enabling Micro, Small and Medium Enterprises (MSMEs) throughout India to get loans up to Rs. 5 crore in just 59 minutes.