The contribution of micro, small and medium enterprises in boosting the Indian Economy over the past few years is not lost on the country. The government of India has made special attempts to enhance the working, employability, infrastructure and most importantly, investment in the MSME sector. The 12th five-year plan has also laid emphasis on the growth of micro, small and medium enterprises along with the establishment of new enterprises, small businesses or start-ups. The government has introduced several new schemes for funding and investment for small businesses and start-ups. These schemes offer easier and quicker credit facilities and loans required by businesses and start-ups to flourish.

Government Loan Schemes

Businesses and entrepreneurs can acquire loans from both banking as well as non-banking institutions. However, there are various government loan schemes for the MSME sector that offers advances at a low rate of interest and provides other benefits in comparison to the loans provided by banks or non-banking institutions. Following government loan schemes are available for MSMEs and start-ups

1.    Pradhan Mantri Mudra Yojana- Micro Units Development & Refinance Agency Ltd Yojana, commonly known as the MUDRA Yojana was introduced by the Government of India to develop and re-finance enterprises at the micro-level by supporting the financing institutions. Under the MUDRA yojana, non-corporate, non-farm small/micro enterprises can avail loans up to Rs. 10 Lakh from Commercial Banks, Regional Rural Banks of India, Small Finance Banks, and other banking and non-banking institutions. MUDRA is a refinancing institution and does not directly offer loans to businesses or entrepreneurs rather individuals can avail loans from other institutions under this scheme. Three products created under MUDRA Yojana are:

i.    Shishu- It covers loans up to Rs. 50,000/-

ii.    Kishore- It covers loans from Rs. 50,000/- up to 5 Lakh.

iii.    Tarun- Loans from Rs. 5 Lakh up to 10 Lakh are covered under this product.

Checklist for MUDRA loans

•    Identity proof- Voter ID, PAN Card, Passport, Aadhar card

•    Proof of Residence

•    Recent passport size photograph

•    Proof of Identity/Address of Business Enterprise

•    Proof of sales during the current financial year (in case of Kishore and Tarun loans)

•    Statement of Bank accounts, if any.

•    Balance sheet for last years ( applicable for loans above Rs 2 lakhs) 

•    Photos of Directors/Proprietors/Partners

•    Quotation of purchase of machinery or other items.

Benefits of loans under MUDRA Yojana

•    The borrower does not have to pay any processing fee.

•    There is no collateral fee.

•    The period of repayment of loan is 5 years.

2.    Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTSMSE)

The Credit Guarantee Scheme introduced by the government for MSME allows the availability of loans to start-ups, businesses, entrepreneurs or individuals without any collaterals or third party guarantees. This scheme was launched by the Ministry of Micro, Small and Medium Enterprises to strengthen credit delivery system and to facilitate the flow of credit to MSME.

This Credit guarantee scheme covers all collateral/third party guarantee free credit facility which is extended to new as well as existing MSMEs worth maximum credit of 200 Lakh.

3.    Credit Facilitation Through Bank

Bank Credit Facilitation scheme has been launched by the National Small Industries Corporation (NSIC), a government enterprise that has been facilitating the growth of small enterprise since 1955. NSIC has entered into a Memorandum of Understanding with various nationalized and private sector banks to facilitate credit support to the MSME sector. NSIC has signed MoU with Yes Bank, IndusInd Bank Ltd., Vijaya Bank, Federal Bank, Kotak Mahindra Bank, HDFC Bank, ICICI Bank, Oriental Bank of Commerce, Bank of Maharashtra, Axis Bank, Central Bank of India and others.

Bank Credit Facilitation Scheme combines various public and private sector banks to facilitate credit to MSMEs and also provides an option to apply for a new bank or switch to some other bank. This scheme also provides support to MSMEs for complete documents and submitting to the bank and provides liberal rate of interests from banks.  

How to avail loan under Bank Credit Facilitation Scheme?

Under this scheme, MSMEs can directly approach any of the four branches of NSIC and submit their request for the requirement of a loan from any banks with which MoU is signed. The branch then provides hand-holding support to the MSME and assists in the documentation required for loan approval. 

Required documents

The following documents are required for acquiring MSME loans:

•    Identity Proof

•    Proof of Residence

•    Proof of Business Address

•    Asset and Liability Statement of promoters, guarantors, directors etc. with the latest income tax returns.

•    Last three years balance sheet and next two years projected balance sheet. 

•    Copy of SSI registration certificate.

•    Position of accounts with existing bankers.

•    Project Report for term loan requirements.

Interest rate and processing charges differ from bank to bank.

Startup Loan Schemes

The government of India is not only focusing on existing enterprises but also promoting the establishment of new businesses. Government has launched separate loan schemes that focus on providing financial assistance to startups and emerging businesses other than the existing ones. The following schemes have been introduced for providing loans to startups in India.

1.    SIDBI Make in India Soft Loan Fund for Micro, Small and Medium Enterprises (SMILE).

Small Industries Development Bank of India (SIDBI) has launched a SIDBI Make in India Soft Loan Fund for Micro, Small and Medium Enterprises (SMILE) scheme that focuses on advancing ‘Make in India’ campaign launched by the Government of India and allowing MSMEs to actively take part in the campaign. The scheme emphasizes on advancing loans to small enterprises within the MSME sector. It is expected that the scheme will benefit around 13,000 enterprises with nearly 2 lakh employees.

The objective of SMILE is to meet the required debt-equity ratio for the establishment of an MSME by providing soft loans to new enterprises in the nature of quasi-equity ratio and term loan on relatively soft terms.

Eligibility Criteria for Scheme

•    This scheme pays primary attention to providing financial assistance to new enterprises in both manufacturing as well as services sector. However, focus is also laid on financing smaller enterprises.

•    Existing enterprises undertaking expansion, modernization, technology up-gradation or other projects and wanting to take advantage of new emerging opportunities are also eligible for MSME loan under this scheme.
•    The minimum value of MSME loan under this scheme is Rs. 10 Lakh for equipment finance and 25 lakh for others. 

Duration for repayment of the loan

The loan availed under SMILE scheme can be repaid within a period of 10 years including moratorium of up to 3 years. 


Under SMILE scheme, the borrowers have to provide the following security.

•    First charge over all assets created under the project.

•    Personal guarantee of promoters.

•    Term loans up to 2 Crore are covered under the Credit Guarantee Scheme of CGSTME.

Government Loan Schemes for Women

Women are being recognized as an integral part of the manufacturing and services sector in India. The government of India is supporting and promoting women entrepreneurs by launching special schemes for offering subsidies and loans to women entrepreneurs.

1.    Mahila Udyam Nidhi Scheme

Mahila Udyam Nidhi Scheme has been launched by Small Industries Development Bank of India (SIDBI) to offer loans to startups by women and to promote women entrepreneurs. It offers financial assistance in the form of loans to women entrepreneurs to set up new enterprises.

Eligibility criteria

•    Existing and new MSME or small businesses which are promoted mainly by women entrepreneurs are eligible to avail MSME loans under Mahila Udyam Nidhi Scheme.

•    Women entrepreneurs setting up new projects or rehabilitating their business are eligible to avail the benefits of this scheme.

•    Small businesses and MSMEs under expansion, modernization or technological up-gradation are also eligible for financial assistance under this scheme. 

•    The cost of setting up a new enterprise shall not exceed Rs. 10 lakh. A soft loan limit of up to 25% of the project cost subject to a maximum of Rs. 2.5 lakhs per project can be provided to women entrepreneurs. 

Repayment period

MSME loans under Mahila Udyam Nidhi Scheme are repayable within 10 years which shall include moratorium period of maximum 5 years.

2.    Bhartiya Mahila Bank Business Loan

Bhartiya Mahila Bank Business Loan is another loan scheme provided to only women entrepreneurs. Bhartiya Mahila Bank is a public sector banking company established in 2013 with a vision of promoting women entrepreneurs. Maximum loan amount of Rs. 20 Crores can be granted to manufacturing enterprises and up to Rs. 5,00,00,000  to service enterprises under the Bhartiya Mahila Bank Business Loan scheme. Women entrepreneurs can also obtain collateral-free loan of up to Rs. 1 Crore under the government’s Credit Guarantee Scheme. MSME  Loan under this scheme is granted to women entrepreneurs at a concession of 0.25% in interest rate and is repayable within a term of 7 years.

Rate of interest

Rate of interest under this scheme ranges between 10.15%-13.65%.

Eligibility Criteria

Bhartiya Mahila Bank Business loan can be granted to the following:

•    Sole proprietor

•    Partnership Firm

•    Private Limited/Limited 

•    Co-operative Society

The relevance of the MSME sector is also very significant in the ‘Make in India’ campaign of the Government of India. The government has been focusing on increasing employability in the manufacturing and services sector which is possible only with the establishment of new enterprises and the advancement of the already existing ones. Therefore, several government schemes have been launched to offer loans to micro, small and medium enterprises.


eStartIndia Team

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