Ultimate Guide on Business Loans by Government of India

According to IBEF, MSMEs contributed approximately 30% of India’s overall GDP. 

ALSO,

“India’s total export, i.e., 40%, and manufacturing output, i.e., 45%, also comes from the MSME sector,” says RBI.

The MSME (micro, small and medium businesses) sector is India’s largest job creator sector. Given the importance of this industry in the country’s overall growth, the Indian government offers a variety of credit schemes for the same. 

Business loans given by government offer financial support to MSMEs, helping them perform business activities and work on expansion with a free mind. Talking about business loans by the government, there’s a long list of available schemes. 

In today’s blog, we’ll explore some of the most proffered business loans given by government. But before we move on to the list, let’s first learn why the government offers loans to micro, small and medium businesses. Let’s get started!

Why does Indian government give business loans?

Straight to the point, the Indian government offers business loans to stabilize the GDP. The MSMEs sector contributes to more than 30% of India’s total GDP. It’s considerably a large percentage of contribution. If we look at it, the country’s GDP is directly proportional to this sector. Any adversities and financial downfall in the MSME industry will also adversely affect the GDP of the country. 

The growth rate of India’s development has improved considerably in the past few years. The Indian government doesn’t want all of that to go down easily. Therefore to avoid an economic crisis in the country, the commercial sector must not fall. Therefore, business loans given by government were introduced to offer financial support to the MSMEs. 

Luckily, it has been a great move by the government. The MSME industry now generates more than 120 Million jobs every year (Source: Times of India). We all know the more job opportunities, the better the economic growth in India. This is exactly what has happened with the introduction of business loans given by the government. Now that we know why the Indian government offers business loans let’s move forward with the list of such loans/schemes. 

List of Business Loans/Schemes given by Indian Government

According to Mint, there are more than 7.9 Billion MSMEs in India as of 2022. 

Business loans given by the government are a major factor in the exceptional growth of the MSME sector. With that said, here are some major and popular business loans by government of India:

1. Pradhan Mantri Mudra Yojana Loan (PMMY)

The Indian Government introduced the Pradhan Mantri Mudra Yojana on April 8, 2015. It was launched with the objective of offering finance options to non-farm and non-corporate small and micro businesses. This mudra loan can be availed from Public sector and Pirate sector Banks, non-banking financial companies, and other financial organizations. With the help of the official MUDRA website, interest parties can apply for the scheme and avail of the loan.

Features of Pradhan Mantri Mudra Loan:

• Collateral-free credits and loans.
• The loan amount can go as high as ₹10 Lakhs.
• There are no prepayment charges.
• No processing fee is charged.
• The concessional interest rate for female entrepreneurs.

Document Required for Pradhan Mantri Mudra Loan:

• Photo identity proof and current address proof.
• Proof of income.
• Ownership proof of residence.
• Bank statement of last 6 months.
• Proof of continuity of the business and other.

2. SIDBI Make in India Loan for Enterprises

SIDBI is an abbreviation for Stand-up India Scheme and was introduced on April 05, 2016. Under this scheme, the loans are provided to those businesses that are operated by Scheduled Tribes, Scheduled Castes, and women. The scheme is governed by the Small Industries Development Bank of India, also known as SIDBI. This loan is provided by almost every Indian bank to every SC, ST, and women entrepreneur. According to this scheme, the provided business loan will cover 75% of a project’s cost.

Features of SIBDI:

• Loans are offered in the form of term loans and soft loans.
• A competitive rate of interest is charged.
• The repayment period is longer than other loans.
• The loan amount gets dispensed to the applicant’s bank account quickly.
• The scheme is designed to promote innovation, protect intellectual properties, and facilitate investments.

Document Required for SIDBI:

• Same proof as Pradhan Mantri Mudra Loan under PMMY.
• Article of association of memorandum of the company.
• Net worth statement of guarantors and promoters.
• Rent agreement and clearance certificate from the pollution control board.
• Udyog Aadhar memorandum and other.

3. MSME Loan in 59 Minutes

MSME Loan in 59 Minutes is among the most popular business loans given by Indian Government. The scheme was launched in September 2018 and has been a hit ever since. The MSME scheme is ideal for businesses that want a quick source of finance for business expansion. Borrowers can take home loans ranging from ₹1 Lakh to ₹5 Crores in just 59 minutes. The interest rate that’s charged by the banks on the loans under this scheme is somewhere around 8.50% PA.

Features of MSME Loan in 59 Minutes:

• Loans of up to ₹5 Crore can be availed under this scheme.
• The loan amount will be transferred into the recipient’s bank account in less than 60 minutes.
• Minimum documents are required for the application process.
• Businesses can apply for loans between ₹1 Lakh to ₹5 Crore under this scheme.
• The interest rate charged for the loans under the scheme is 8.5%.

Document Required for MSME Loan in 59 Minutes:

• Business entity proof, incorporation certificate, and partnership deed.
• PAN card of business entity and partners.
• Financial proof such as projected turnover, tax audit reports, and profit & loss reports.
• Address proof of the directors and business entity.
• Bank statement of the applicant for the last 6 months and other.

4. Coir Udyami Yojana

Introduced in 2014, the Coir Udyami Yojana is a subsidy scheme which helps businesses easily set up their coir manufacturing within Indian boundaries. The scheme is a perfect blend of loan and subsidy (55% loan and 40% subsidy), which is subjected to an upfront contribution by the business owner (5% project cost). The scheme offers loans to NGOs, registered societies, joint liability groups and individuals. The maximum amount for a loan that can be availed is ₹10 Lakh + the working capital.

Features of Coir Udyami Yojana:

• Any project with an existing loan on it is not eligible for this scheme.
• Working capital is not considered for loan applications.
• Any individual applying for the loan must have a caste certificate.
• The loans under the Coir Udyami Yojana are covered by the Ministry of MSME.
• The Coir Udyami Yojana is a credit-linked scheme.

Document Required for Coir Udyami Yojana:

• Cast certificate issued by an authorized body.
• The detailed working of the project cost, including expenses such as capital expenditure, building and machinery.
• KYC documents of application – residential proof and identification proof.
• Proof of coir industry experience.
• Certificate of Entrepreneurship Development Program and other.

5. Bank Credit Facilitation Scheme

The Bank Credit Facilitation Scheme provides financial support to micro, small and medium businesses. It does that through credit and financial assistance with documentation, submission, and proposal to financial organisations. Under the Bank Credit Facilitation Scheme, businesses can receive non-fund based limits like letters of credit and guarantees. In addition, small businesses that want fast and short-term loans for business expansion can opt for loans under this scheme at a low-interest rate. 

Features of Bank Credit Facilitation Scheme:

• The interest rate charged for loans under the Bank Credit Facilitation Scheme is low compared to other schemes.
• Assistance with various banking activities is offered, such as the opening of a bank account, transfer of the account, switch of accounts, etc.
• The amount of loan can vary from company to company depending upon their size.
• For a business to be eligible for this scheme, enterprise ID should be recognised and registered by the Indian government.
• The application for loans under this scheme can be submitted at any bank in India.

Document Required for Bank Credit Facilitation Scheme

• Proof of identity such as passport, Aadhar card or voter id.
• Residence proof such as electricity bill.
• Liability statement with latest IT return.
• Details of assets possessed by the guarantors and directors.
• Estimate balance for the next 2 years, along with a credit facilitation application form and other.

Steps to Register For Business Loans given by Government

Following are all the required steps to apply for  business loans by Indian government:

1. Visit the website of the nearest bank offering business loans by the government
2. Register on the portal by filling in the asked details
3. Fill in the login credentials and enter the one-time authentication password
4. Agree to the T&C and move forward to the next step
5. Enter all the financial credentials and other information asked for the chosen loan
6. Once done, click on the confirmation button, and it’s done. 
7. Once the application is filled out, you will receive an email or SMS regarding the application status. 

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FAQs of Business loans given by Government

What are some of the best business loans by Government?

Here is a list of some best business loans given by Indian Government:

1. Pradhan Mantri Mudra Business Loan (PMMY)
2. SIDBI Make Loan for SC, ST & woman entrepreneur
3. .MSME Loan in 59 Minutes
4. Coir Udyami Yojana
5. Bank Credit Facilitation Scheme

What is Pradhan Mantri Business Loan?

Pradhan Mantra Mudra Yojana (PMMY) is launched by Hon’ble PM Narendra Modi on 8th April, 2015. Through this scheme, non-corporate, small and medium enterprises can take up to 10 lakhs of business loan.

Can I get loan from Government in less time?

Yes, you can surely get up to 5 crores of loan in 59 minutes through MSME loan scheme by Government. Along with this huge loan amount there is only small interest rate of 8.5% (according to the banks).