Top 10 Government Loan Schemes for Startup Companies in India

23/06/2021

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There is no better feeling than starting your own business, is there? After all, it not only provides a steady channel of income, but also offers you the opportunity to ensure the livelihoods of others. The internet, various emergent technologies, and multiple e-commerce marketplaces have unlocked new frontiers for entrepreneurs and increased their outreach remarkably. With more customers switching to mobile applications and shopping websites, fresh business opportunities are being created for small- and medium-sized businesses (SMBs).

However, even with all the digital innovations and their benefits, SMBs still face a multitude of challenges when starting their enterprises. These challenges often include lack of access, understanding and financial support. While it may be easy to find information about online and offline startups on the internet, financial insecurities remain a major obstacle for first-time entrepreneurs. This blog is aimed at easing those insecurities and shedding light on various government loan schemes that encourage entrepreneurship and empower startups.

Challenges of Finding a Suitable Financier

Startups face two broad challenges when it comes to finances. Firstly, given the lack of experience and exposure, most SMBs find it difficult to get financiers to provide the initial capital for the business. Secondly, upon getting the initial financial support, most SMBs are faced with uncertainties around the return on investment (ROI). Some of the key difficulties faced SMBs are as follows:

It is tough for startups to hire a highly skilled workforce at affordable rates.
Oftentimes, SMBs are forced to lower the prices of their products/services to merely survive in a highly competitive market.
SMBs only have access to working capital to fund their needs and requirements.
In some cases, recurring expenses exceed working capital.
Purchasing new tools and equipment drains funds rapidly.

Access to Finance

The government of India recognizes the role of SMBs in furthering the national economy, and in order to help startups, the government has introduced various useful loan schemes that can help businesses with access to initial capital. These support schemes have been designed to help SMBs deal with initial challenges by offering timely and adequate funding.

Enlisted below are 10 government loan schemes that aim to help SMBs tide over initial hiccups and smoothly set up their enterprises.

Prime Minister’s Employment Generation Program (PMEGP)

PMEGP is a credit-linked subsidy program supervised by the Ministry of Micro, Small and Medium Enterprises, Government of India. This scheme was launched in 2008 to promote the establishment of micro enterprises in rural and urban areas for generating more employment opportunities. The PMEGP extends financial assistance up to ₹ 23.75 lakh at an interest rate of 11% to 12% to the beneficiaries through the selected banks. One of the greatest benefits of this scheme is that it allows beneficiaries to avail a subsidy up to 35% by investing only 5% to 10% of the total project cost. Usually, the banks evaluate the application and sanction the amount to the beneficiaries within 60 days.

Eligibility criteria:

The venture should be a startup
The applicant must be above 18 years of age
The applicant should have at least passed standard VIII educational qualification
The maximum project cost is Rs. 25 Lakh for the manufacturing sector and Rs. 10 Lakh for the service sectors.
Charitable trusts, societies registered under Societies Registration Act of 1860, co-operative societies involved in the production business and self-help groups not availing the benefits of any other social welfare scheme can also apply for the loan.

Micro Units Development and Refinance Agency (MUDRA)

This government scheme offers low-cost credit loans up to Rs 10 lakh. This loan scheme is specifically for non-corporate, non-farm startups and small business entities, and the loans are provided through various banks in the form of Tarun Loans, Kishore Loans and Shishu Loans. Other facilities include a special debit card with your MUDRA.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

This initiative facilitates collateral-free loans and offers the opportunity for various regional, rural and commercial banks to enlist as lending authorities. Loans are sanctioned based on the SMB’s credit standing. Under this guarantee scheme, credit facilities up to Rs 200 lakh can be availed by the borrower. For credit up to Rs 5 lakh the extent of guarantee cover is 85% for micro enterprises and for credit from Rs 10 lakh to Rs 100 lakh, the extent of guarantee cover is 50% of the sanctioned amount.

Interest Subsidy Eligibility Certificate (ISEC)

The Interest Subsidy Eligibility Certificate (ISEC) is a scheme launched by the Government of India to support the Khadi and polyvastra sectors. Under this scheme, the Khadi institutions registered with the KVIC and KVIBs are provided with credit at 4% rate of interest. The Central Government through KVIC pays the difference between the actual lending rate and this concessional rate of interest, to the lending banks.

Coir Industry Technology Upgradation Scheme (CITUS)

This scheme is a part of the Coir Vikas Yojna and has been introduced to provide financial assistance up to Rs. 2.50 crore to entrepreneurs of the coir sector for upgrading or establishing new units.

Financial Support to MSMEs in ZED Certification Scheme

This scheme has been launched to provide 80%, 60% and 50% subsidy to Micro, Small and Medium enterprises respectively to support the Make in India initiative and help them inculcate the Zero Defect and Zero Effect practices in manufacturing processes.

Small Industries Development Bank of India (SIDBI) Make in India Soft Loan

SIDBI’s Make in India Soft Loan helps SMBs with technological upgrades and expansions for growth purposes. Eligible business owners can expect to receive a minimum loan of ₹ 10 lakh for equipment finance and ₹ 25 lakh for covering other such needs.

Sustainable Finance Scheme

Sustainable Finance Scheme is created for renewable energy projects. Startups that are wind energy generators, solar power plants, and mini-hydel power plants, among others, are eligible for this loan. This scheme boosts the value chain of businesses that deal in energy-efficient items. This scheme offers working capital loans or term loans.

National Bank for Agriculture and Rural Development (NABARD)

NABARD offers refinancing and lending options for rural areas for developing agriculture and agrarian industries through various government sponsored schemes. It also finances handicrafts, small industries and rural enterprises.

Marketing Assistance Scheme

The marketing assistance scheme provides budgetary support up to Rs 45 lakh for organizing exhibitions abroad and other marketing related campaigns and activities.

A To-Do List for Loan Application

When applying for a loan, make sure that the documentation is in order. Since these schemes are provided by the government, collateral may not be necessary. However, you need to furnish all the relevant documents to get the loans. Here is a checklist of documents that will help you:

Business Background: Details of your business, including experience of growing your business.
Business Plans: Some loan applications may require you to detail your business plan.
Business and Personal Tax Returns: Tax return records of the previous three years.
Financial Statements: These statements include cash flows records, bank statements, balance sheet forecasts and profit-loss statements.
Legal Documents: These are required to prove that your business venture has been registered as per guidelines and operates legally.
Collateral: Although not required in most cases, collateral could help you secure a larger loan amount. In that case, collateral documents should be in place for faster sanctions.

There are some other points worth keeping in mind when applying for a loan. They are:

Check with your loan provider first: Standard repayment tenures and interest rates vary across loan schemes.
Check eligibility status: Ventures should be selling innovative products, services and schemes.
Check business categorization: Ventures should be limited liability partnerships or private limited companies.

Conclusion

If you are an entrepreneur at heart and are certain about your business plan, wait no further. The government loan schemes are here to assist you with your initial entrepreneurial steps. Avail the benefits of the schemes and make good of your ambitions. If you are or aspire to be an e-seller, register on Amazon today to get answers to all your loan-related queries and get one step closer to your dream of being a star entrepreneur.

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