Multiple banks. Different interest rates. Call it a "conflict of interest".
  • Government Loans for Small Scale Businesses

    The small-scale business sector, which is more popularly known as the Small and Medium Enterprises (SME) sector, is responsible for contributing around 40% to the total Gross Domestic Product (GDP) of India. This sector is a key source of employment in India but faces stiff competition from privately-funded businesses. Realising this, the Government of India has come forward to offer many loan schemes to finance the small-scale business sector. These loans can be availed by the SMEs to fund their day-to-day operations, expand their business, purchase new equipment, etc.

    Top Government Loans for Small Scale Businesses

    Name of the Scheme Rate of Interest (p.a.) Loan Amount Repayment Tenure
    SIDBI Make in India Loan for Enterprises (SMILE) 9.45% to 12.70% Rs.25 lakh to Rs.50 lakh Up to 10 years including 3 years moratorium
    Pradhan Mantri Mudra Yojana (PMMY) Varies from bank to bank Up to Rs.10 lakh Varies from bank to bank
    Credit Guarantee Scheme - Up to Rs.200 lakh -
    Bank Credit Facilitation Scheme Varies from bank to bank Up to Rs.5 crore 5 years to 7 years
    Stand-Up India Scheme Up to base rate + 3% + tenor premium Rs.10 lakh to Rs.1 crore 7 years

    SIDBI Make in India Loan for Enterprises (SMILE)

    Features:

    • The scheme has been designed to foster innovation, facilitate investment, protect intellectual property, enhance skill development, and build the best infrastructure for MSMEs.
    • Under the scheme, loans will be offered in the forms of soft loan and term loan.
    • MSMEs engaged in 25 selected sectors will receive financial support at competitive interest rates as part of the ‘Make in India’ campaign launched by the government of India.
    • New enterprises in the services and manufacturing sector will be given importance along with an emphasis on smaller enterprises within the MSME.

    Pradhan Mantri Mudra Yojana (PMMY)

    Features:

    • The scheme will extend loans to activities that create employment and generate income in the areas of services, manufacturing, retail, and agriculture.
    • No collateral or security need to be provided to avail the Mudra loan.
    • Three types of loans can be availed under Mudra for different stages of the business, namely, Shishu, Kishor, and Tarun.
    • The loans under the Mudra Yojana will be extended by public sector banks, private sector banks, cooperative banks, Regional Rural Banks (RRBs), foreign banks, Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs).

    Credit Guarantee Scheme for Micro and Small Enterprises (CGSMSE)

    Features:

    • The scheme was launched with an intent to offer collateral-free credit to the micro and small enterprise sector.
    • Both working capital facility and term loans are eligible to be covered under the scheme.
    • Under the scheme, guarantee cover can be availed up to 75% of the sanctioned amount of the credit facility.
    • For microenterprises seeking a loan of up to Rs.5 lakh, MSEs owned and operated by women, and loans in the North-Eastern region, guarantee cover of up to 80% will be provided.

    Bank Credit Facilitation Scheme

    Features:

    • The loans under this scheme are facilitated by the National Small Industries Corporation (NSIC) which has signed a Memorandum of Understanding (MoU) with banks to offer loans to meet the credit requirements of SME units.
    • The facilitation is carried out by offering MSME units the option to pick between private and public sector banks.
    • The loans are available in the form of working capital and term loans.
    • Through this scheme, the NSIC will also help SME units to get loans at affordable rates, help with the documentation process, and other necessary services related to the loan.

    Stand-Up India Scheme

    Features:

    • Designed specially to meet the fund requirements of Scheduled Caste (SC)/Scheduled Tribe (ST)/women entrepreneurs for the purpose of setting up a greenfield enterprise.
    • The enterprise should be engaged in the business of manufacturing, trading, or services.
    • The loan will be of composite nature which means that the loan will be inclusive of working capital and term loan.
    • If the enterprise to be set up is non-individual, the controlling stake (51%) should be held by either an SC, ST, or women entrepreneur.

    Eligibility Criteria

    The eligibility criteria for government loans for small scale businesses will vary from lender to lender but the basic ones have been listed below:

    Type of Business All micro enterprises engaged in trading, manufacturing, and services sector including professionals such as architects, doctors, CAs, etc.
    Residential Status of the Applicant Resident of India
    Age Between 25 years and 66 years
    Status of the Business New or existing enterprises

    Documents Required

    Application form Filled and duly signed
    KYC Documents Business entity proof, partnership deed, incorporation certificate, shops, and establishment certificate, Articles of Association (AOA)
    PAN Card
    • Of partners/directors/proprietors/promoters
    • Of the business entity
    Financials
    • Projected turnover and current year performance
    • Tax audit reports, balance sheet, profit and loss report, VAT returns, audited and provisional financials, etc.
    Address Proof
    • Of the business entity
    • Of directors/promoters/partners/proprietors
    Bank Statements For the last 6 months
    Photographs Passport-size photograph of applicant/co-applicants

    How to Apply?

    Availing government loans for small scale businesses will not cause you much sweat. Since most government loans are dispensed through banks and financial institutions, you can directly approach them to avail loans. You can visit the nearest branch of the bank or financial institution who will guide you on the loan application process.

    Some lenders will also allow you to apply for business loans online on their respective websites. You can visit their websites, fill up the application form provided, upload the relevant documents, and submit it. Once you complete the process and the verification is done from the bank’s end, the loan amount will be credited directly into the bank account you provided during the application process.

    Frequently Asked Questions

    1.What are the ways in which I can pay my small-scale business loan?

    Answer: You can choose to repay your small scale-business loan in any one of the following ways – Post Dated Cheques (PDCs), Electronic Clearing Service (ECS), and Direct Debit. ECS and Direct Debit are the more preferred form of repayment by borrowers of small-scale business loan.

    2. How much EMI do I need to pay for my business loan?

    Answer: The Equated Monthly Instalment (EMI) that you need to pay towards your business loan will be based on the loan amount, repayment tenure, interest rate, etc. You can use the EMI calculator available on the home page of the BankBazaar website under the ‘Finance Tools’ section.

    3. What is the maximum amount of loan I can avail as a business loan?

    Answer: The maximum amount of loan that can be availed as a small-scale business loan is Rs.5 crore but this will depend on factors such as the lender, the type of business, etc.

    4. Do I need to provide any collateral or security to avail a government loan for small scale business?

    Answer: You will not be required to provide any collateral or security to avail a government loan for small scale business. However, some lenders may ask you to provide collateral if the loan amount is higher. Providing collateral will boost the confidence of lenders to lend to you as in the case of defaults, they can auction/sell it to recover the outstanding loan.

    5. Can I avail a loan under the Mudra scheme to start my own business?

    Answer: Yes, you can. Under the Mudra scheme, loans can be availed in the range of Rs.50,000 to Rs.10 lakh. The amount of loan that you can avail to start your business will depend on the nature of business, lender, your credit history, etc.

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