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Government Loan Schemes for Small Businesses; All Details Inside

Chintu Das
Chintu Das
Business Loan

Government business loans are financial assistance offered by the government of India in the form of loan schemes, which are made available through financial institutions such as private and public sector banks, NBFCs, Regional Rural Banks, and others.

These loans are helpful to all (including those from the rural community) who are planning to start a small business.  

Top 6 Government Loan Packages for New MSMEs and Startups:

- Stand-Up India:

Stand up India was established by the Small Industries Development Bank of India (SIDBI) to provide money to people from the SC/ST group as well as women entrepreneurs. At least one SC/ST borrower and one women borrower per bank branch are eligible for bank loans ranging from Rs 10 lakh to Rs 1 crore under this scheme.

Eligibility Criteria:

This scheme is open to businesses in the trading, manufacturing, and service industries. In the event of non-individual businesses, at least 51 percent of the ownership stake must be held by a SC/ST or a woman entrepreneur.

Loan Features:

The interest rate would be the cheapest applicable rate – (MCLR Base Rate + 3% + Tenor Premium).

It provides composite loans ranging from Rs. 10 lakh to Rs. 1 crore to cover up to 75% of a project's costs, including the term loan and working capital.

The loan is projected to cover 75% of the project costs, according to the terms of the loan. It will not be relevant if the borrower's contribution, along with any other schemes' convergence support, surpasses 25% of the project cost.

- PSB/MSME Loans in less than an hour:

On November 5, 2018, our Prime Minister introduced psbloansin59minutes, a specialized digital platform or web page that allows new businesses and MSMEs to get loans of up to Rs. 5 crore in just 59 minutes. Government starting loans were created to help Micro, Small, and Medium Enterprises (MSMEs) across India. The following are some of the amazing qualities of this facility:

Interest rate: The rate of interest offered under this scheme starts at 8.50 percent per year and goes up from there.

Loan amount: The loan amount granted under this loan would range from Rs. 1 lakh to Rs. 5 crores.

Fast financial assistance: Typically, such loan applications take 7-10 business days to complete. The loan approval process, on the other hand, takes only 59 minutes.

Quick disbursement: After the loan is accepted in an hour, the funds should arrive in your bank account in 7-8 business days.

- National Small Industries Corporation (NSIC) Subsidy:

Under the National Small Industries Corporation Subsidy (NSICS), the government assists small businesses with two financial benefits: marketing support and raw material assistance. The following are some of its advantages:

- Tenders at no cost: Under the marketing support program, Small-Scale Industries (SSIs) will have free access to tenders.

- There is no requirement for a security deposit: SSIs (Small Scale Industries) are not required to pay a security deposit in order to get financing.

- Land and building financing: The scheme provides a financial assistance for the land and building department for SSI units with a project cost of not more than Rs. 25 lakh.

Government Loans

- Make in India Soft Loan Fund for MSMEs by SIDBI:

SMILE, which was established in 2015, is managed by the Small Industries Development Bank of India (SIDBI). The goal of this program is to provide low-interest loans in order to fulfill the required debt-to-equity ratio for the development of new MSMEs as well as the expansion of existing ones. SMILE Timely Working Capital Assistance during COVID times offers an interest rate of 8.25 percent and up.

Eligibility Criteria: As of February 29, 2020, all current borrower accounts, including those under a Credit Delivery Arrangement, with total outstanding credit facilities of up to Rs 25 crore were eligible.

Loan Amount: Up to 20% of total outstanding loans with SIDBI up to Rs. 25 crore with a Rs. 5 crore ceiling exposure.

- MUDRA Loan under PMMY:

This program was created by the government to provide funding to non-corporate, non-farm small/micro businesses. Private and public sector banks, commercial banks, regional rural banks (RRBs), small financing banks, and corporate banks all offer Mudra loans. Interested applicants should contact one of the financing institutions listed above or apply online through MUDRA's official website. Small businesses and startups are the most common recipients of MUDRA loans.

Loan Features:

- Banks and NBFCs offer competitive interest rates.

- Loan a sum of up to ten lakh rupees

- Repayment terms range from 12 to 5 years.

- Loans with no collateral

- There is no processing fee.

- There are no fees for paying in advance.

- Women Entrepreneurs Get Special Interest Rates

Eligibility Criteria:

- The applicant must be at least 18 years old and no older than 65 years old.

- Applicants who have never defaulted on a loan before.

Individuals, MSMEs, proprietorship/enterprise enterprises in rural and urban regions can apply for the loan as part of the Non Corporate Small Business Segment (NCSB).

The three Mudra loan programmes, as well as the loan amounts available, are listed below.

- Shishu: Loan Scheme: Up to Rs. 50,000 Shishu: Loan Scheme: Up to Rs. 50,000 Shishu: Loan Scheme: Up

- Kishor: Loan amounts range from Rs. 50,000 to Rs. 5 lakh.

- Tarun: Loan amount ranges from Rs. 5 lakh to Rs. 10 lakh.

- Credit Guarantee Scheme (CGS):

The Government launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to strengthen and facilitate credit delivery to the MSME sector. Under this arrangement, public, commercial, and foreign banks, as well as Regional Rural Banks (RRBs) and the SBI with its affiliate banks, are included as lending institutions.


This scheme is open to new and current MSMEs involved in manufacturing or service operations, with the exception of retail trade, educational institutions, agriculture, Self-Help Groups (SHGs), and training institutes.

Loan Features:

- Term loans and/or working capital loans up to Rs. 2 crore are available under this MSME scheme for entrepreneurs.

- Up to 75% of the loan limit up to Rs. 1.5 crore is covered by the guarantee.

- Micro-enterprises are eligible for 85 percent of credit for loans up to Rs. 5 lakh.

- All loans to the North Eastern Region, including Sikkim, including 80 percent of credit facility for MSMEs owned/operated by women

- The guarantee cover for MSME retail trade is 50% of the amount in default, up to a maximum of Rs. 50 lakh.

Documents Needed to Apply for a Loan:

The paperwork needed for various government programs may differ from one to the other. However, we have listed a few common documents to give you an idea of what documents may be necessary when applying for the schemes:

- Passport-sized photos and a fully completed application form

- Documents proving your identity: Proofs of the applicant's identity, age, and address: Passport, voter ID card, Aadhar card, driver's license, PAN card, and utility bills are some of the documents required (Water & Electricity Bills)

- Bank statements from the previous six months

- Certificate of Incorporation, Proof of Address, and PAN Card

- If appropriate, proof of belonging to the SC/ST/OBC group.

- Any other paperwork required by the bank

How to Register for Government Loan Programs

Step 1: Go to the official website of the nearest bank that is eligible to lend loans under government initiatives.

Step 2: Create an account on the portal and use One-Time Password (OTP) authentication to log in.

Step 3: Agree to the government lending scheme's terms and conditions.

Step 4: Fill in your financial credentials and any other required information.

Step 5: Complete the remaining steps by filling out the forms and submitting the relevant papers.

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