Ever since the MSMEs Act of 2006 and the Startup India Initiative in 2015 were intorduced, there have been a rise in micro small and medium-sized (MSMEs) enterprises. However, in the nascent stages, it’s challenging for businesses to get funding as their business is still unproven. The startup business loan by Indian government is instrumental in this case.
It is not uncommon knowledge that the MSME sector as well as all the startups in India have limited access to formal credit. The startup business loan by Indian government are greatly instrumental in providing various business loans for these entities such as loans from public banks and subsidized rates for borrowing money from private financial institutions.
The startup business loan by Indian government for MSMEs and startups encourage these small ventures, which will lead to job creation and hence, help in the economic growth of the nation. Several leading financial institutions are now offering startup business loan by Indian government for such businesses and ventures by providing them attractive interest rates.
The eligibility criteria of startup business loan by Indian government
The startup business loan by Indian government have varying eligibility requirements. However, in order to qualify for these loans, you must:
- Be 21 years or over as an applicant, and the maximum age limit is 65.
- Be a citizen of India.
- Demonstrate that as an owner you have a serious outlook and understand what it takes to successfully run a small business.
- As an MSME or startup, you should incorporate as either a sole proprietorship, partnership, limited liability company (LLC) or Limited Liability Partnership (LLP).
- Have a good credit rating.
Applying for a startup business loan by Indian government
Startup business loan by Indian government typically have a very standardized application process. However, other types of financial assistance applications are often a lot more complicated. Here’s a quick review of how:
- Applicants of the startup business loan by Indian government should visit the website of the business loan scheme that they seek or that of a financial institution which provides loans to MSMEs and startups.
- To apply for a startup business loan by Indian government, the applicant must click on the ‘Apply Loan’ link which is displayed prominently on the homepage.
- The applicant for a startup business loan by Indian government must complete all of the required fields in the corresponding link, such as details of the owner and desired loan amount, or the information requested by the bank, and attach copies of important documents.
- When the applicant for a startup business loan by Indian government has submitted all the details, they’re contacted by a representative of the scheme or financial institution regarding the loan formalities.
- When the loan application for a startup business loan by Indian government is approved, the borrower usually receives the money within a few days.
Documentation Required for Business Loans
- KYC documents for startup business loans include passport, aadhar card, driving license, voter’s ID card (the identity document required in a person is above 18 years old), PAN card as well as utility bills
- Self-drafted business plan
- A copy of the applicant’s bank statement for the last 12 months and a copy of his or her previous year’s tax return
- Business incorporation certificate
- Proof of the business address
- Additional documents required by the lender
List of startup business loan by Indian government
The following is the list of startup business loan by Indian government:
Pradhan Mantri Mudra Yojana (PMMY)
The Pradhan Mantri Mudra Yojana (PMMY) or “Mudra” loans are startup business loan by Indian government designed to provide micro, small and medium enterprises with working capital. The following financial institutions offer PMMY loans:
- Small Finance Banks.
- Commercial Banks.
- Non-Banking Financial Company (NBFC).
- Microfinance Institutions (MFIs).
The applicants can apply for Mudra loans by approaching any of the lending institution mentioned above or the 59 Minutes portal (a web platform developed by RBI). Mudra loans are available for entrepreneurs without collateral and have repayment durations ranging from one to five years. The PMMY scheme divides these loans according to the development stage of an enterprise:
- ‘Shishu’ provides loans up to Rs.50,000.
- ‘Kishor’ offers loans above Rs.50,000 up to Rs.5 lakhs.
- ‘Tarun’ offers loans above Rs.5 lakhs up to Rs. 10 lakhs.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a startup business loan by Indian government that provides loans to MSMEs without collateral requirements. This scheme provides a credit amounting up to Rs.200 lakhs for MSMEs and startups, meaning the companies that have been registered for less than ten years and have an annual turnover below Rs.25 crore. If the borrower defaults on payments to the bank or any other creditor financing their business through this program, 50%, 75%, 80% or 85% of the original loan amount will be replaced by SIDBI.
NABARD has classified commercial banks, the private sector banks, public sector banks and foreign-owned along with select regional rural banks, into two categories according to the size of their loan books. The first one is for MSMEs and startups; another for borrowers seekingarge amounts. The interest rates of loans granted under this scheme are determined by the RBI.
Salient Features –
How to Get a Small-Business Loan in Just 59 Minutes
PSB Loans in 59 Minutes Portal is a new platform launched by the government of India for making the applications for loans easier under its Mudra and MSME schemes. Through this portal, the loan application process time is brought down from hours down to just a few minutes. You’re required to submit the documents online or on scanning-enabled mobile phones within an hour of your applying for your loan. Upon the approval of your application for a loan, it is then sent to the applicant’s business within seven to ten working days.
The in-principle approvals on the PSB loans portal are up to Rs.5 crores and can be either working capital loan or term loans for startup business loans by the Indian government, depending upon the specific needs of your business. The interest rates vary from 8% onwards depending upon various factors such as the current rate of inflation, risk rating etc.
Borrowers should be compliant with IT and GST, and have KYC documents (know your client) along with a six months long bank statements history. There are numerous banks partnering with the PSB loans portal, so borrowers can choose any lender for in-principle approval.
Credit-Linked Capital Subsidy Scheme (CLCSS)
The Credit Linked Capital Subsidy Scheme (CLCSS) provides a subsidy to the new and existing MSMEs or startups for technology upgradation. This scheme, also called Technology Upgradation Fund Scheme, allows 15% of institutional credit up to Rs.1 crore per borrower in identified technologies, sectors or subsectors. However, the maximum amount you can receive as a subsidy is set at Rs.15 lakhs and must be approached through one of 11 nodal agencies or banks associated with this scheme.
The CLCSS scheme intends to make the MSME sector better through several interventions like in terms of products with superior quality, upgradation of technological and reduction in waste. There’s also a provision for cloud computing capabilities along with design intervention that facilitates intellectual property rights (IPR) along with the incubation of ideas promoting entrepreneurship among its members.
Term Loan by Banks
Banks and financial institutions often offer small business loans to entrepreneurs and has a fixed repayment schedule. The rate of interest, duration of the loan and the amount is different for different banks. The repayments are made monthly as a fixed amount spread over the life of the loan.An excellent example of the same is Equated Monthly Instalments (EMIs).
Banks and financial institutions often offer short term loans to entrepreneurs and has a fixed repayment schedule. The rate of interest, duration of the loan and the amount is different for different banks. The repayments are made monthly as a fixed amount spread over the life of the loan.An excellent example of the same is Equated Monthly Instalments (EMIs).
- Business expansion.
- Buy fixed assets.
- Meet working capital requirements.
- Paying off rent and salaries.
- Hiring new staff, etc.
Working Capital Loan by Banks
MSMEs and startups can apply for working capital loans with banks or other financial institutions. They’re used for meeting with the everyday requirements of cash whenever it exceeds the credit cards capacity (which have a shelf life of only 12 months). This funding for businesses is handy to assist covering short-term operating expenses and cannot be used for investments or the purchase of long-term assets. The funding for businesses comes in two forms: microloans (for companies with gross annual revenues under $100,000) and mezzanine loans (to support profitable businesses looking to expand).
The amount of loan is different for different banks, and small businesses can take out a minimum working capital loan of Rs.50,000 at a fixed interest rate. The money received from this type of financing can be used for different purposes like:
- Debt payments.
- Buying inventory and raw materials.
- Paying employee wages.
- Managing overhead costs.
- Paying suppliers, etc.
Banks offer a variety of loan schemes to small businesses and startups.
Banks and financial institutions offer various loan MSMEs as well as startups. These loans may be used to cater to numerous business needs, some of them being:
- Purchase of inventory and equipment.
- Operating capital (working capital).
- Fund requirement for expansion, etc.
Distinct banks and financial institutions have different loan schemes with differing terms and conditions to offer with the interest rates. Information about the various business loan schemes is available on banks’ websites.
Some banks offering loans specifically for small businesses are: State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank to name a few
There are several financial institutions that provide loans to small businesses.
- Non-Banking Financing Companies (NBFCs).
- Small Finance Banks (SFBs).
- Regional Rural Banks (RRBs).
- Micro Finance Institutions.
Small Industries Development Bank of India (SIDBI) Loans
The Small Industries Development Bank of India (SIDBI) is the institution that’s primarily responsible to develop, promote and finance the MSME sector. This institution plays an instrumenta role to helps small businesses acquire funds for growth, marketing as well commercialization of their technologies. Several schemes are offered to help different kinds of businesses grow, some of them are:
It mandates various direct finance loan schemes, such as
- SIDBI’s Term Loan to Enhance Production Of MSMEs (STEP) Scheme Guidelines.
- SIDBI and Google Partnership for Assistance to Micro Enterprises (SANGAM).
- SIDBI Assistance to Export Oriented MSMEs Under Ubharte Sitaare Programme.
- Assistance to Re-Energize Capital Investments by SMEs (ARISE).
- SIDBI Assistance to Facilitate Emergency Response Against Corona Virus-Plus (SAFE Plus).
- Top Up Loan For Immediate Purposes (TULIP).
- SIDBI-Loan For Purchase of Equipment For Enterprise’s Development Plus (SPEED Plus).
- SIDBI-Loan For Purchase of Equipment For Enterprise’s Development (SPEED).
- Working Capital (Cash Credit).
The Small Industries Development Bank of India is a portal that provides information on eligibility criteria as well as features of various direct loans. You as a business owner can ake choice to select the schemes that suit your business the best and then apply for it directly through SIDBI’s portal.
National Small Industries Corporation Scheme (NSIC)
A government enterprise, the National Small Industries Corporation (NSIC) helps SMEs as well as startups by providing services like access to market, transfer of technology as well as financial assistance. This scheme initiated a scheme to help SMEs to easily acquire raw materials. It also provides loans to bring about purchase of supplies and equipment for inventory and operation.
The NSIC scheme also facilitates your business to procure raw materials with its credit support up to 180 days. It also assists the customers in availing the benefits of cash discounts, bulk purchases etc and also provides a ‘Bank Credit Facilitation’ scheme to help SMEs meet their credit requirements, having entered into a Memorandum of Understanding (MoU) with various nationalized and private sector banks, as well as microfinance institutions
The NSIC, helps MSMEs to get access to bank loans along with ensuring that all the paperwork is completed properly. Follow ups with banks are made to ensure granting of credit facilities. The business owners applying for the loans can visit a website operated by the NSIC, go through its features and apply for any of their schemes on this site.
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