Government Business Loan: Definition, Types, Features & Eligibility Criteria

To start a new business or expand the existing one, you need to invest substantial capital. This investment is necessary to start the business or continue its operations seamlessly. It might become difficult for most small business owners to arrange the capital, especially for newly launched ventures. 

So, business owners or entrepreneurs often use loans to fund their businesses. Several banks, NBFCs, and government schemes have been lending money to business organisations. If you are looking for credit options at suitable loan terms without pledging any assets, you can choose to apply for Government business loans.

Continue reading to know more about it!

Government Business Loan: A Brief Idea

As per records, MSMEs (micro, small and medium enterprises) contribute around 40% of India’s total GDP. Considering the contribution of MSMEs to India’s economic growth, the government has taken initiatives to help them grow their operations. The Indian government is looking forward to boosting economic growth by providing business loans for small-scale business developments.

You can avail of these loans from multiple public sector banks, micro-finance institutions, rural banks, and cooperative banks. Such loans come with attractive features like refinancing options, low-interest rates, zero collateral, flexible tenure, etc.

Top 5 Government Business Loans

You can get different types of government business loans as per your requirements and convenience. Here are the 5 best business loan schemes offered by the Indian Government to finance small businesses:

1. Pradhan Mantri MUDRA Yojana (PMMY)

MUDRA stands for Micro Units Development and Refinancing Agency. Under the PMMY scheme, small and micro businesses can get a credit of up to ₹10 lakh. Different financial institutions provide loans to small-scale businesses and start-ups. There are three types of MUDRA loans, namely Shishu Loan, Kishor Loan, and Tarun Loan. 

For Shishu Loan, you can borrow a maximum of ₹50,000; for Kishore Loan, the limit is ₹5,00,000, and ₹10,000,00 for Tarun Loan. To avail of these loans, you need to apply at banks and NBFCs registered with Pradhan Mantri MUDRA Yojana. Moreover, you can apply through the official online portal. 

Features

• You can avail of these loans at a competitive interest rate which varies as per the chosen scheme.
• You can borrow a minimum amount of ₹50,000 and a maximum of ₹10,00,000 from the MUDRA scheme without any collateral.
• A flexible repayment tenure from 12 months to 5 years is available.
• There’s no processing fee or unnecessary hassles of loan approval under the MUDRA scheme. 
• You can close the loan prematurely without paying any prepayment charges.
• If you are a woman entrepreneur, you can get MUDRA loans at discounted interest rates.

Eligibility Criteria

Here are the eligibility criteria for a MUDRA loan:

• Your age should be between 18 to 65 years while applying for a MUDRA loan.
• Though there are no strict guidelines for credit scores, you should have a recommendable repayment history without any defaults.

2. MSME Business Loan Scheme

Any new or existing business in the MSME sector can avail of this loan through banks with minimum documentation. The processing can be completed in 1 hour. Under the MSME business loan scheme, you can borrow a higher amount of up to ₹10 lakh to ₹5 crore at a lower interest rate.

Features

Here are some of the features of an MSME business loan:

• You can get the fastest collateral-free loan approval under an MSME scheme.
• The initial interest rate for MSME loans starts from 8.5%
• The loan amount may vary depending on your business volume and the institution from where you are borrowing. 
• An eligible business organisation can avail of instant financial assistance from the government through MSME loans.

Eligibility Criteria and Required Documents

• GST registered business
• ITR for a minimum of one year in XML format
• latest 6-month bank statement in PDF  files
• business & loan requirement details

3. National Small Industries Corporation Subsidy

You can apply for the NSIC subsidy scheme under the SPR scheme if your business qualifies as MSME with UAM (Udyog Aadhaar Memorandum). National Small Industries Corporation offers two types of subsidy benefits: market assistance and raw material assistance.

You can also apply for a credit support scheme under NSIC. Under this scheme, you can get financial assistance from registered lending institutions for equipment procurement and supply chain, etc.

Features

Check out the features and benefits of NSIC subsidy schemes below:

• When you opt for the NSIC scheme, you need not pay any charges to access the tenders.
• If you are applying for the credit support scheme, a security deposit is not required.

Eligibility Criteria

• MSME-registered business organisations with Udyam Registration can apply for NSIC under Single Point Registration Scheme.

Features

• Credit Link Capital Subsidy Scheme (CLCSS) offers a maximum of 15% subsidy on capital purchases. 
• An additional 10% subsidy is offered to entrepreneurs from SC/ST categories.
• You can avail loan under the CLCSS scheme during small to medium-scale transition.

Eligibility

• Private, public, and sole proprietorship companies under the MSME sector can avail of this subsidy scheme.
• MSMEs in rural and semi-urban areas with valid Udyog Aadhaar Memorandum (UAM) numbers can apply for this subsidy scheme.

4. Credit Guarantee Fund Scheme for Micro and Small Enterprises

With Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), start-up businesses and MSMEs can avail of government aid instantly to boost their businesses. You can get financial assistance under this scheme from PSBs, private and partnership banks, rural banks, etc. Creditworthy business organisations can borrow a zero collateral loan amount of up to ₹10 lakhs to fund their requirements. 

Features

Here are some of the mentionable features of a CGTMSE:

• You can avail of zero collateral loans for an amount of up to ₹2 crores.
• Retail MSMEs can enjoy loan guarantee cover of up to 50% of the default amount for loans within Rs. 50 lakhs.
  • You need to pay a trust fund fee of 1% on the sanctioned loan amount. For loans up to ₹5 lakhs, the fee is 0.75% and for loans above ₹5 lakhs but up to ₹1 crore, it is 0.85%.

Eligibility Criteria

The following MSMEs can apply for a loan under Credit Guarantee Fund Scheme:

• Manufacturing sector
• Service sector
• Training institutions
• Educational institutions
• Self-help groups, etc.

Final Words

Considering the rapid growth of MSMEs in India, government business loans have been a great catalyst for their growth and development. The government aims at financing these businesses to boost the country’s economy. If you are planning to start a small or micro-scale business, consider availing of business loans from any of these schemes. Government-aided loans are beneficial in many ways for new and existing small-scale businesses.

FAQs

Q1. What are the benefits offered by Government business loan schemes?

Ans. With the intent to strengthen small and micro-scale businesses, the government offers business loans at competitive rates. These schemes offer multiple benefits to the borrowers such as zero processing fees, flexible tenures, easy approvals, guarantee cover, etc. Moreover, you can avail of subsidies on timely repayment.

Q2. What are the minimum and maximum amounts of loans I can get from government business loan schemes?

Ans. You can borrow a minimum loan amount of ₹10,000 from these schemes. However, the maximum amount can vary according to the chosen scheme. You can borrow as much as ₹1 crore and more under some schemes.

Q3. What are the documents required to apply for an MSME loan?

Ans. Here are some of the eligibility criteria and documents you need to avail of MSME loans:

• UAM registration
• Recommendable credit history
• ID proof
• Business address proof
• Address proof
• Income proof
• IT returns

Q4. Is there any special government business loan for women entrepreneurs?Ans. The contribution of women entrepreneurs to the Indian economy has been notable so far. Considering their remarkable performance in business, the government has launched some specific loan schemes, especially for women. Any new or existing women entrepreneur planning to extend their business can avail of Udyogini and Stand Up India schemes by the government.