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Top 15 Subsidies Provided by Government for Small Businesses and MSMEs
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. These government initiatives play a pivotal role in assisting SMEs to surmount liquidity bottlenecks, ensuring seamless operations, and enhancing competitiveness. 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. There are several benefits of a government subsidy loan such as lower interest rates, no collateral requirements, etc. Read on to learn more about Indian government subsidy schemes and decide which one to choose.
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).
Financial Assistance:
Under the scheme, fund and non-fund-based credit facilities up to INR 500 Lakh are covered for eligible borrowers, while the collateral-free loan limit extends to a maximum of INR 50 Lakh. The guaranteed cover under the scheme is up to the extent of 50%, 75%, 80%, and 85% of the sanctioned credit amount.
Who Can Apply:
New enterprises and existing enterprises both are eligible under this scheme.
2. Pradhan Mantri Mudra Yojana (PMMY)
This is a Business Loan offered to MSMEs by the Government of India. The schemes within this framework have been named after the various stages of growth and funding requirements of the entrepreneur, namely: 'Shishu', 'Kishor', and 'Tarun'. These also serve as milestones for entrepreneurs to aspire towards in their journey of progression and expansion.
Financial Assistance:
PMMY disburses the following three types of loans:
The Business Loan for MSMEs via PMMY doesn’t need any collateral, and one can avail of 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.
Who can Apply:
Eligible entities include proprietorship or partnership firms engaged in small-scale manufacturing, retail shops, fruit and vegetable vendors, hair salons, beauty parlours, transportation services etc. It also includes service providers and self-help groups operating in both rural and urban areas, with financing needs of up to INR 10 Lakh.
3. Subsidy Offered Through National Small Industries Corporation (NSIC)
NSIC was established as an independent body enabling assessment of the capabilities and creditworthiness of MSEs and making credit easily accessible at attractive interest rates. It primarily facilitates the growth of MSMEs by providing services in the fields of finance, technology, and marketing.
It has initiated two schemes to foster the growth of MSMEs. Read more about these schemes below:
Financial Assistance:
MSE Turnover Reimbursement through NSIC:
Who can Apply:
Any enterprise that is registered as a Micro or Small Enterprise in India is eligible to apply.
Also Read: 5 Useful MSME business loan tips for young entrepreneurs
4. Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS)
Technology upgradation typically involves the adoption of cutting-edge or nearly cutting-edge technology. 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 helps provide SMEs with the required funds.
The CLCSS scheme provides an upfront capital subsidy of loans availed by micro and small enterprises for the induction and improvement of technology. The technology adopted must be proven and fall under certain approved categories.
Financial Assistance:
The scheme provides an upfront capital subsidy of 15%, limited to a maximum of INR 15 Lakh to MSMEs to modernise their plants and machinery.
The recently revised CLCS subsidies are as follows:
Who Can Apply:
Sole proprietorship, partnership firms, cooperative, private, and public limited companies are eligible to benefit from this scheme.
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. The project may be in the manufacturing, trading, or agriculture-allied sectors. And, in the case of a non-individual enterprise, an SC/ST or woman entrepreneur must hold at least 51% of the shares.
Financial Assistance:
It facilitates loans ranging between INR 10 Lakh to INR 1 Crore (SC or ST or woman), inclusive of both working capital loans and term loans.
Who Can Apply:
The following are the eligibility criteria to apply for the scheme:
6. Lean Manufacturing Competitiveness Scheme (LMCS) for MSMEs
The LMCS scheme aims to provide support to the MSMEs to reduce their manufacturing expenses by optimising space utilization, minimising engineering time, enhancing personnel management, streamlining processes and similar initiatives. It is primarily to enhance the competitiveness of MSMEs by implementing various lean manufacturing techniques.
Financial Assistance:
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.
Who Can Apply:
Industry associations or groups comprising approximately 10 qualifying MSME units under the MSME Development Act, who are willing to establish a Special Purpose Vehicle (SPV) in the form of a Mini Cluster are eligible to apply.
Also Read: How to Manage Cash Flow in Business?
7. Government Subsidy for Small Business for Cold Chain
The Department of Agriculture Cooperation and Farmers Welfare (DAC&FW) oversees the implementation of the Mission for Integrated Development of Horticulture (MIDH), which offers financial support for a range of horticultural activities such as the establishment of cold storage facilities. This scheme aims to provide cold chain and preservation infrastructure for enterprises involved in horticulture, organic produce, poultry, meat, and dairy products.
Financial Assistance:
A subsidy amounting to 35% of the project's capital cost in regular areas and 50% in Northeastern, Hilly States, and Scheduled Areas, for storage capacities ranging from 5,000 MT to 10,000 MT. Additionally, in the Northeast states, projects with a storage capacity of 1,000 MT or higher are also eligible. The maximum subsidy allowed per project is capped at INR 7.50 Crore.
Who Can Apply:
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 (Integrated Development for Leather Sector Scheme) IDLS scheme is designed to support several key objectives within the leather and footwear sector. It includes infrastructural development tailored to the industry's needs, addressing environmental challenges specifically in the leather and footwear sector. It also promotes investments in the sector, thereby stimulating its growth.
Financial Assistance:
Who Can Apply:
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 the 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.
Financial Assistance:
For organising awareness programs, the Government of India provides financial support up to 75% of the actual expenditure. The maximum assistance is capped at INR 1.5 Lakh for obtaining a licence and INR 2 Lakh for International certification.
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 INR 10 Lakh.
Who Can Apply:
MSMEs enrolled on the UDYAM portal of the Ministry of Micro, Small, and Medium Enterprises (MoMSME) are eligible for this scheme.
Also Read: What are the Phases of the Business Cycle?
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 the creation of new processing parks.
Financial Assistance:
The financial assistance will be in the form of a grant, capped at 50% of the project cost. For projects employing Zero Liquid Discharge Systems, the maximum grant is capped at INR 75 Crore. While for projects using conventional treatment systems, the maximum grant is INR 10 Crore. Support for marine discharge projects the maximum assistance would be INR 75 Crore.
Who Can Apply:
Existing Textile/Clusters engaged with Water treatment & effluent treatment plants and technology are eligible for this scheme. It also includes the upgradation of infrastructure such as captive power generation plants on technology and common facilities such as R&D centres and testing labs.
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.
Get a Small Business Loan from Poonawalla Fincorp at an attractive interest rate with zero foreclosure charges.
11. Prime Minister’s Employment Generation Programme (PMEGP)
The Prime Minister’s Employment Generation Programme or PMEGP is a merger of two previously launched schemes called Prime Minister’s Rojgar Yojna (PMRY) and the Rural Employment Generation Programme (REGP). This Government of India initiative endeavours to foster opportunities for unemployed individuals and traditional artisans to venture into entrepreneurship beyond agriculture, thereby empowering them to establish their own small-scale businesses.
The Khadi and Village Industries Commission (KVIC) manages this program nationally, while at the state level, it is handled by State KVIC Directorates, District Industries Centres (DICs), State Khadi and Village Industries Boards (KVIBs), and banks. Through PMEGP, the government provides financial support to entrepreneurs by channelling subsidies through banks directly into their accounts.
Financial Assistance:
The highest allowable assistance in the manufacturing sector is INR 25 Lakh, while in the business or service sector, it is INR 10 Lakh.
Who Can Apply:
Individuals aged 18 years or older are eligible to apply for this initiative, provided they have completed at least the eighth grade. For projects in manufacturing that cost over INR 10 Lakh, and for business or service projects that cost over INR 5 Lakh, they can apply.
12. Equity Infusion for MSMEs through Fund of Funds
Small and medium-sized businesses often struggle to get enough money to grow. Venture capital and private equity firms are known for providing funding to start-ups and early-stage businesses. However, there is a noticeable gap in the market, as fewer firms extend their funding to businesses that are in their growth stage.
To help these businesses grow and become big enough to be listed on stock exchanges, the government has a fund called the Fund of Funds. This fund offers money to small and medium-sized businesses that have the potential to grow and have a sustainable business plan. This scheme assists Venture Capital (VC) and Private Equity (PE) firms in investing in financially viable MSMEs to fulfil their growth needs. The planned fund-of-funds initiative aims to stimulate private sector investments in the MSME sector and unlock a leverage of INR 50,000 Crore.
Financial Assistance:
Growth Fund to MSMEs Through Equity Financing: The Government of India supports VC and PE to invest in the viable MSMEs to meet their growth requirements. This fund-of-funds scheme is an initiative that aims to stimulate private sector investments in the MSME sector and leverage INR 50,000 Crore.
Private Funding Leverage: This scheme aims to provide private funding benefits through professional funds managers who have access to funds and strategic performance oversight. Fund-of-funds can help get a range of investors, from financial institutions to other government funds, to grow your business.
Who Can Apply:
Any MSME is eligible to apply for this fund. Applications must be submitted through investment firms registered with the Fund of Funds. The Government of India will facilitate these investment firms to offer money to sustainable businesses demonstrating rapid growth potential.
Also Read: Impact of Business Loan EMI Bounce on Your Creditworthiness
13. Credit Guarantee Scheme for Subordinate Debt (CGSSD)
The Credit Guarantee Scheme for Subordinate Debt (CGSSD) aims to assist struggling small businesses by offering support directly to their owners. If the business is going through financial constraints and is at risk of defaulting on its loans, owners have the option to inject the funds received from the scheme as equity. As a result, this will help increase their liquidity and maintain the debt-to-equity ratio.
This scheme is especially useful for businesses that have already failed to pay their loans or are close to doing so.
Financial Assistance:
Business owners can get a loan amount of 50% of (promoter’s stake) what they have invested in the business or outstanding loans availed by the enterprise or INR 75 Lakh, whichever is less.
Who Can Apply:
The MSMEs that are financially stressed and are about to become an NPA are eligible for this scheme. The promoters or business owners of the eligible MSMEs can approach nearby commercial banks to avail of such schemes.
14. SIDBI Make in India Loan for Enterprises (SMILE)
The SIDBI Make in India Loan for Enterprises (SMILE) is meant to support small businesses and help them be a part of the 'Make in India' initiative by the Government of India. It offers flexible loans, acting like a mix of equity and debt, to help MSMEs maintain a healthy balance of their debt-to-equity ratio.
Financial Assistance:
The financial assistance is 10% of the project cost with a capping of INR 20 Lakh and 15% of the project cost with a capping of INR 30 Lakh for businesses owned by women entrepreneurs, SC, ST or persons with a disability. The rate of interest for the first 3 years ranges from 9.15% to 9.35% per annum and 11.70% to 12.70% per annum from 4th year onwards.
Who Can Apply:
This scheme is open to new businesses in the manufacturing and services sector, as well as existing ones looking to expand or upgrade. It focuses on supporting smaller businesses within the MSME sector, whether they are just starting or trying to grow.
15. MSME Business Loan for Start-ups in 59 Minutes
The Government of India recently introduced a scheme to offer a quick Business Loan to start-ups and MSMEs within 59 minutes. A new online portal has been launched specifically for MSMEs to streamline the loan application process, making it entirely automated. The objective is to expedite and simplify the loan acquisition process. Upon approval, funds will be disbursed within a maximum of seven to eight working days. This scheme focuses on simplifying the loan application process, covering different types of Business Loans such as term loans and working capital loans.
Financial Assistance:
Under this scheme, the loan amount ranges from INR 10 Lakh to a maximum of INR 5 Crore.
Who Can Apply:
Any business or MSME that is looking forward to applying for a Business Loan (either a term loan or a working capital loan) can be eligible to apply. The business must be compliant with the latest IT regulations and should furnish a bank account statement of a minimum of 6 months.
While you are looking for government subsidy schemes, Poonawalla Fincorp’s Business Loan for MSME can be helpful for you.
Also Read: What is Alternative Financing for Businesses?
At Poonawalla Fincorp, you can avail yourself of various types of Business Loan catering to different business financial needs and requirements. As a borrower, you can opt for an unsecured Business Loan, Small Business Loan, Business Loan for Working Capital, Business Loan for Women, Business Loan for MSME, Business Loan for a proprietor, Business Loan for a Retail shop, etc.
Poonawalla Fincorp’s Business Loan interest rate starts at 15% p.a. Along with competitive interest rates, you can enjoy existing features such as minimal documentation, higher loan amounts of up to INR 50 Lakh, instant approval and disbursal, flexible tenure of up to 36 months and many more. You can visit our official website to avail yourself of Poonawalla Fincorp’s Business Loan.
The subsidy provided by the government for small businesses and MSMEs is helpful for businesses to reach to the desired scale without any hassle and support from the government. While selecting the government schemes, you must check whether you can apply for the particular scheme. Moreover, your decision will depend on your business size, product, and scale. Make sure you avail of the loan amount per your financial requirements.
1. 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.
2. 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).
3. 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 INR 5 Crore under the MSME Loan Scheme. However, various factors 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.)
4. 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 loans, various other lenders for Business Loan for small-scale businesses demand collateral or security. A higher loan amount requires a borrower to provide security.
5. 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 INR 50,000 to INR 10 Lakh.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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