Business Loans For Startups – Government Schemes

There are so many government schemes for business loans for startups. This is a guide to the most important ones that you need to know about.

The number of Micro Small and Medium Enterprises (MSMEs) in India exceeds six crores, and they may be found in both the organised and unorganised sectors. Through their internal and international commerce, these companies make up around 29% of the GDP. The industry also makes a significant contribution to the socioeconomic advancement of the nation. Additionally, Indian MSMEs are quickly moving away from cash payments in favour of digital ones; 72 per cent of payments are made digitally vs only 28 per cent in cash. This surge in digital use offers opportunities for the industry to continue growing.

To guarantee that sufficient liquidity is maintained in company operations, the government and financial institutions must provide considerable fiscal stimulus in the form of favourable working business loans for startups and MSMEs. Therefore, the government has developed a number of programmes to support these businesses and grow the economy. Any of these government-sponsored programmes that meet their needs allows MSMEs and beginning business owners to borrow money in the form of a business loan. To put an end to our investigation, this article explains the finest government business loans for startups, MSMEs and entrepreneurs.

The Government of India started an effort dubbed “Startup India” in 2016 to encourage the startup culture and create a robust and inclusive ecosystem for innovation and entrepreneurship in India. It is the government’s premier programme that launched a number of initiatives aimed at assisting entrepreneurs and transforming the nation into one of the employment creators rather than job seekers through business loans for startups. 

Here are list of some of the government schemes for startups:

• Pradhan Mantri Mudra Yojana
• National Bank for Agriculture and Rural Development (NABARD)
• Stand Up India Loan 
• Credit Guarantee Scheme (CGS)
• Market Development Assistance Scheme (MDAS)
• Coir Udyami Yojana
• Sustainable Finance Scheme
• Bank Credit Facilitation Scheme
• Udyogini Scheme or Udyogini Yojana

1. Pradhan Mantri Mudra Yojana

The Pradhan Mantri Mudra Yojana is a programme that the Honourable Prime Minister Narendra Modi announced in 2015 to offer loans up to Rs 10 lakh to small and medium-sized businesses that are neither corporations nor farms. According to the Pradhan Mantri Mudra Yojana, these business loans for startups are categorised as Mudra loans. Commercial banks, Small Finance Banks, Regional Rural Banks (RRBs), Micro-Finance Institutions (MFIs), and Non-Banking Financial Companies commonly provide Mudra loans (NBFCs). The borrower may submit an application through one of these lenders through the website www.udyamimitra.in.

Under the auspices of the Pradhan Mantri Mudra Yojana, MUDRA has developed three business loans for startups: “Shishu,” which covers loans up to Rs. 50,000, and “Kishore,” which covers loans above Rs. 50,000 and up to Rs. 5 Lakhs, and “Tarun,” which covers loans above Rs. 5 Lakhs and up to Rs. 10 Lakhs. These business loans for startups serve to indicate the stage of growth/development and funding requirements of the beneficiary micro unit/entrepreneur as People between the ages of 18 and 65 can apply for a Mudra loan for a new or used unit at a reasonable interest rate without providing any collateral or outside security. Additionally, business loans for startups run by female business owners are available at lower interest rates.

2. National Bank for Agriculture and Rural Development (NABARD)

NABARD, or National Bank for Agriculture and Rural Development, is a development organisation with a strong emphasis on India’s rural areas. It is one of the most important financial organisations in the nation since it encourages farmers to take on projects in particular regions by providing subsidies for a portion of the project’s overall cost. It is in charge of creating cottage industries, small businesses, and other rural initiatives. All of these initiatives seek to increase important national employment, steady income flow, and capital investment. Additionally, NABARD has collaborated with the government as a channel partner on a number of programmes that fund these initiatives. The financing banks get the subsidy as soon as it is received. Some of these schemes are:

• Agri Clinics and Agri-Business Centres Scheme (ACABC)
• New Agricultural Marketing Infrastructure (AMI) sub-scheme of Integrated Scheme for Agricultural Marketing (ISAM)
• Dairy Entrepreneurship Development Scheme (DEDS)
• Commercial production units of organic inputs – National Project on Organic Farming (NPOF)
• National Livestock Mission – Entrepreneurship Development and Employment Generation (NLM-EDEG)
• Interest Subvention Scheme
• GSS (Government Sponsored Scheme) – Ensuring End Use of Subsidy Released

3. Stand Up India Loan 

The Stand Up India Loan falls under the category of business loans for startups and was created by the Indian government with the aim of facilitating startup loans between 10 lakh and 1 crore to at least one woman and one member of a Scheduled Caste (SC) or Scheduled Tribe (ST) at every bank branch for starting a new business. An SC/ST or women entrepreneur must own at least 51% of the shares and control of the greenfield business in the manufacturing, services, agri-allied industries, or trading sectors in order to qualify for the Stand-Up India Scheme. It should be emphasised that only greenfield projects are eligible for the business loans for startups offered under the programme. The borrower should also not be in arrears with any banks or financial institutions. For up to 85% of the project cost, the loan is available in a composite structure that includes a term loan and working capital. It can be repaid in up to 7 years with a maximum moratorium period of 18 months.

4. Credit Guarantee Scheme (CGS)

Credit Guarantee Scheme (CGS) for Micro and Small Enterprises has been introduced by the Indian government, MSME, and the Small Industries Development Bank of India (SIDBI). The scheme’s primary goals were to improve the credit delivery system, make it easier for business loans for startups to reach the MSME sector, give underserved, underprivileged, and unserved people access to financing and expand the availability of financing from traditional lenders to new generations of business owners. Regional rural banks, commercial banks, foreign banks, and state banks make up the majority of the lenders. For the past 20 years, qualifying Member Lending Institutions [MLIs] has granted loan facilities free of third-party guarantees and/or collateral to MSEs. This has been made possible via the Credit Guarantee Scheme. Any MSMEs engaged in manufacturing or services, whether established or newly founded, are eligible to qualify for a Credit Guarantee Scheme. Self-help organisations, small-scale traders, agribusinesses, training facilities, etc. are not included in the programme.

5. Market Development Assistance Scheme (MDAS)

The Market Development Assistance Scheme is now being run by the Indian Government’s Ministry of Commerce with the goal of encouraging exporters (particularly MSMEs exporters) to enter and expand international markets. The Market Development Assistance Scheme (MDAS) provides business loans for startups for things like attending international trade shows, study abroad trips, trade delegations, and PR. Additionally, the programme offers small businesses direct support under MDA for participation in fairs, exhibits, individual sales-cum-study visits, and PR. The SIDBI oversees the direct assistance programme for funding tasks associated with the promotion of MSME goods. The Office of Development Commissioner’s (MSME) current fair participation programme encourages MSME business owners to exhibit their goods at international trade shows overseas. For this aim, the MSME Development Organization offers free display space and free transportation of exhibits from Mumbai.

Proposed Plan:

It was agreed that the Small Industries Development Organization should have a Market Development Assistance (MDA) scheme similar to the one attained in the Ministry of Commerce as part of the complete policy package for the promotion and development of MSMEs.

It was decided to run a new programme called the MSME Exporters Market Development Assistance (MSME-MDA) Scheme in recognition of the fact that MSMEs exporters need to be encouraged in their efforts to tap and develop international markets and that MSME Development Organization’s participation in international fairs when combined with the presence of actual exporters, would lead to a significant increase in export business.

The following are the main goals of the plan:

• To motivate SME exporters to explore and expand their international markets.
• To expand the presence of representatives of SME/MMEs at international trade shows and exhibitions under the MSME India stand.
• To increase small/micro manufacturing businesses’ exports.
• To encourage widespread implementation of barcoding.

The programme offers business loans for startups and MSMEs for: 

• Manufacturing Small & Micro Enterprises’ participation in international trade shows and exhibitions with an MSME India stand.
• Industry associations, export promotion councils, and the Federation of Indian Export Organization conduct sector-specific market surveys.
• MSME Associations initiating or opposing anti-dumping lawsuits.
• Reimbursement of 75% of the one-time registration cost (as of January 1, 2002) and 75% of the yearly fees (recurring), as of June 1, 2007, paid by Small & Micro units to GSI (Formerly EAN India), for the first three years of bar code use.

6. Coir Udyami Yojana

Another subsidy programme introduced by the Indian government is the Coir Udyami Yojana. It is available for the establishment of coir units for a maximum project cost of Rs. 10 lakhs plus one cycle of working capital, which cannot be more than 25% of the project cost. Working capital is not taken into account for subsidy under the Coir Udyami Yojana. As a result, the project cost is covered by bank credit at a rate of 55% of the project cost, the beneficiary is contributing 40% of the project cost, and the rate of subsidy is 40%. Anyone may apply for the programme, as well as Self-Help Groups, Non-Governmental Organizations, organisations recognised by the Societies Registration Act of 1860, Production Co-operative Societies, Joint Liabilities Groups, and charity trusts.

The repayment schedule for business loans for startups cannot be longer than 7 years after the first moratorium, and the applicable interest rate is equivalent to the base rate. The beneficiary of the bank will be responsible for paying the guarantee fee for the coverage of the loan obtained under the plan, which is guaranteed by the Credit Guarantee Trust Fund Scheme. The recipient is not required to offer any security, collateral, or guarantors. The project will not be eligible for the Coir Udyami Yojana if it is currently receiving funding from another programme started by the federal or state governments.

7. Sustainable Finance Scheme

In order to find business loans for startups and sustainable development initiatives that contribute to energy efficiency and cleaner manufacturing but are not covered by international or bilateral lines of credit, the Small Industries Development Bank of India (SIDBI) has created the Sustainable Finance Scheme. All new or ongoing sustainable development initiatives, including those involving renewable energy, the Bureau of Energy Efficiency (BEE) star grading, green microfinance, green buildings, eco-friendly structures, etc., are eligible for the programme. Funding is offered to MSMEs that invest in waste management, whether they are new or established. Existing units must have a positive performance history and a stable financial situation in order to qualify. Additionally, the borrower shouldn’t owe any financial institutions any money.

8. Bank Credit Facilitation Scheme

To meet the financial needs of the MSME units, the National Small Industries Corporations (NSIC) have signed a Memorandum of Understanding with a number of nationalised and private sector banks. The NSIC makes it easier for MSMEs to obtain credit support from banks, both fund- and non-fund-based. Additionally, it follows up with banks and helps MSMEs complete the paperwork needed to submit proposals to banks. The MSMEs are not charged by the NSIC for this mentoring assistance. Depending on their income, startups may have a different loan payback period. But normally, it lasts between five and seven years. It may be prolonged up to 11 years in rare circumstances.

9. Udyogini Scheme or Udyogini Yojana

The Women Development Corporation, a department of the Indian government, implemented the Udyogini Scheme or Udyogini Yojana. The programme seeks to improve the lives and professional prospects of Indian female entrepreneurs. It gives women financial help for new and existing enterprises, encouraging entrepreneurship among low-income women. Several banks provide this programme to prospective female business owners. There is no processing charge and a competitive interest rate on the loan. 

A loan may be provided at a reduced interest rate or even no interest, depending on the circumstances. The female business owners are not required to offer any collateral or guarantors. Only female entrepreneurs with yearly incomes under 1.5 lakhs are eligible to apply for the programme. The income cap does not apply to widowed or handicapped women, though. The highest loan amount available under the programme is Rs 3 Lakhs, with a normal payback period of 6 to 7 years. The initiative provides women with skill development training programmes in addition to cash help.

You can read this also Startup Business Loan by Indian Government

The conclusion

The Indian government has been actively encouraging new business owners by creating a number of financing packages that are simple to apply for and reasonably priced. If you want to take advantage of any of the above-discussed schemes, be sure to create a thorough business strategy that includes an overview of predicted growth and profits. You will make a good impression and be able to raise the most money possible for the project if you include a detailed strategy with your application.