Micro, Small, and Medium Enterprises (MSMEs) are the growth drivers of the Indian economy. To sustain their growth, the Government of India provides several subsidies and various government schemes for businesses. These help SMEs overcome liquidity bottlenecks, conduct smooth operations and be competitive. As a business owner, you can opt for a government subsidy loan for business as compared to other private lenders. There are various benefits that a government subsidy loan for business offers such as lower interest rates, no collateral requirements, etc. On the other hand, private lenders provide other benefits such as personalized service, transparent process, best interest rates, periodic offers, etc. Hence, it makes sense to compare all products before deciding the final one.
1. Credit Guarantee Fund Scheme for micro and small enterprises
The government introduced this scheme to provide collateral-free credit to micro and small enterprises operating in the country. To implement the policy, the Ministry of Micro, Small and Medium Enterprises, Government of India (GoI), and Small Industries Development Bank of India (SIDBI) established a trust by the name of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
Under the scheme, fund and non-fund-based credit facilities up to Rs. 200 lakh are covered for eligible borrowers. The guarantee cover under the scheme is up to the extent of 50%, 75%, 80%, and 85% of the sanctioned credit amount.
2. Pradhan Mantri Mudra Yojana (PMMY)
This is a business loan type offered to MSMEs by the Government of India. PMMY disburses the following three types of loans:
The business loan offer for MSMEs via PMMY doesn’t need any collateral, and one can avail this loan for business growth from financial institutions enrolled and eligible to disburse it. One can also file an online application to procure this loan.
3. Subsidy Offered Through National Small Industries Corporation (NSIC)
An ISO-certified Government of India enterprise, NSIC facilitates the growth of MSMEs by providing services in the field of finance, technology, and marketing. It has initiated two schemes to foster the growth of MSMEs. Read more about these schemes, below:
4. Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS)
SMEs can remain competitive, only by upgrading their technology and machinery periodically. However, this upgrade can be quite capital intensive. This is where the CLCSS scheme is helpful in providing SMEs with the required funds.
The scheme provides an upfront capital subsidy of 15%, limited to a maximum of Rs. 15 lakh to MSMEs to modernise their plants and machinery. Sole proprietorship, partnership firms, cooperative, private, and public limited companies are eligible to benefit from this scheme of the Government of India.
5. Stand-up India Scheme
This is one of the most popular government schemes for small businesses. It aims to finance SC/ST and women entrepreneurs. Its objective is to facilitate loans ranging between Rs. 10 lakh to Rs. 1 crore to at least one borrower (SC or ST or woman) for setting up a greenfield project. The project may be in the manufacturing, trading, or agriculture-allied sector. And, in the case of a non-individual enterprise, an SC/ST or woman entrepreneur must hold at least 51% of the shares.
6. Lean Manufacturing Competitiveness For MSMEs
The objective of this scheme is to enhance the competitiveness of MSMEs by implementing various lean manufacturing techniques. Under this scheme, MSMEs are assisted in bringing down their manufacturing costs via improved processes, better utilising their existing capacities, and scientific inventory management.
The government provides financial support up to a maximum of 80% for consultation fees for mini clusters where awareness programs are conducted. MSMEs need to bear the remaining 20% of the costs.
7. Government Subsidy for Small Business for Cold Chain
This scheme aims to provide cold chain and preservation infrastructure for enterprises involved in horticulture, organic produce, poultry, meat, and dairy products.
Covering pre-cooling facilities at production sites, mobile cooling units, and reefer vans, among others, cooperative societies, NGOs, self-help groups, etc., are eligible to receive grants under this scheme and set up cold chain and preservation infrastructure.
8. Integrated Development for Leather Sector Scheme
This scheme provides grants to the segments in the leather industry for modernising and technology upgradation. It provides assistance up to 30% for the cost of plant and machinery to SSI units and 20% to non-SSI units.
Existing units in the leather footwear and accessories industries are eligible to receive aid under this scheme that the Ministry of Commerce and Industry offers via Council for Leather Exports.
9. Technology and Quality Upgradation Support (TEQUP) Scheme
This scheme aims to create awareness among MSMEs in the country to use energy-efficient technologies to cut down production costs so that they remain competitive.
For organizing awareness programs, the Government of India provides financial support up to 75% of the actual expenditure, subject to a ceiling of Rs. 75,000 per program. For implementing energy-efficient technologies in their operations, MSMEs receive financial assistance up to 25% of the project cost. The maximum amount of assistance that MSMEs can procure under this scheme is Rs. 10 lakh.
10. Integrated Processing Development Scheme (IPDS)
The scheme was launched to address the problems faced by the textile processing industry. Often enterprises in this domain face challenges such as the non-availability of water and environmental pollution. IPDS aims to facilitate the usage of eco-friendly technology in textile processing along with creation of new processing parks.
While the Central Government shares 50% of the cost, the state government, beneficiary, and financial institution share 25%, 15%, and 10% of the cost respectively.
MSMEs can know the documents required for business loan and other types of assistance on the official portal of these schemes and apply for the same.
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How can a borrower pay a small-scale Business Loan?
As a small-scale business owner, you can repay your Business Loan via Electronic Clearing Service (ECS) or Post-Dated Cheques (PDCs). Generally, Small Scale Business Loan borrowers prefer ECS and Direct Debit as a mode of repayment.
What are the factors involved in EMIs for Business Loans?
Loan amount, repayment tenure, and interest rate are three major factors that influence your Equated Monthly Instalment (EMI) for Business Loan. The quantum of EMI that you need to pay is decided by these three factors. The final EMI amount will vary with a change in each of these components. Hence, you need to have an optimum mix of the loan amount (borrow only what is necessary), repayment tenure (have a comfortable tenure that neither strains your monthly cash flows nor stretches for too long) and interest rate (as low as possible).
What is the maximum amount of loan I can avail of as a Business Loan?
A borrower who is looking for a small-scale Business Loan can avail of Rs.5 Crore under MSME Loan Scheme. However, there are various factors that influence the loan amount such as the type of business, credit score, the type of lender, etc. The maximum loan that you can avail of will depend on these factors – the type of business (cash flow positive/negative, level of competition, the market for the product/service, etc.), the credit score (higher the better), type of lender (micro-lender, bank, NBFC, etc.)
Is collateral or security required to avail of a government loan for small-scale businesses?
No, you don’t have to provide any collateral or security to avail yourself of a government loan for a small-scale business. Other than government loan, there are various other lenders for Business Loan for small-scale Business that demands collateral or security. A higher loan amount requires a borrower to provide security.
Can a loan under the Mudra scheme be used for starting a business?
Yes, a borrower can avail loan under the Mudra scheme to start his own business. The loan amount under the Mudra scheme ranges from Rs.50,000 to Rs.10 Lakh.
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