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Top 5 Government Loan Schemes for SMEs and MSMEs in India

Top 5 Government Loan Schemes for SMEs and MSMEs in India
May 09
12:20 2019

Running a business or enterprise requires constant cash flow and regular funding to overcome daily capital expenditure. Business loan is the foremost thought that comes to SMEs and MSMEs in order to expand business, buy plant or machinery, to pay salaries, and hire and train staff, etc. Over the past severalyears, Government of India has launched several loan schemes catering to the financial needs and requirements of small businesses in India.

Indian economy is majorly dependent on MSMEs, as the Small and Medium Enterprises (SME) sector contributes near to 40% of the total GDP. The primary focus of loan schemes is the growth of Small and Medium Enterprises. Government has introduced collateral free loan schemes that shall ease out the burden on MSMEs. Out of several loan schemes offered by Government, let’s discuss the top 5 Government loan schemes for small and medium sized businesses in India.

1) MUDRA Loans

Micro Units Development and Refinance Agency (MUDRA) is a loan scheme initiated by the Government of India that majorly focuses on the development and growth of SME & MSME sectors. Mudra loan scheme resolve the funding problems of the small enterprises in public and private sectors, both. The funding is provided to NBFCs, small commercial banks and private and public banks under Mudra scheme. Mudra loan scheme is provided via 3 categories,including Sishu, Kishore and Tarun. Under Sishu scheme, loan amount up to Rs. 50,000 is offered to start a business. Kishore loan amount is upto 5 lakh in which the business has already established and requires more funding. The highest level of loan scheme is up to Rs. 10 lakh, also provided to established businesses.Applicants can apply for Mudra loan and gain the benefit by visiting the official website of Mudra.

2) Stand-up India

Stand-up India scheme is a scheme for financing SC/ST and women entrepreneurs. Stand-up India scheme provides bank loans between Rs. 10 lakh and Rs. 1 cr to at least one borrower belonging to SC/ST and a women borrower per bank branch. Stand-up India scheme is only offered to enterprises working for service, trading and manufacturing sectors. The shareholding and controlling stake should be at least 51% in case of non-individual enterprises. This loan scheme is offered to SC/ST or women entrepreneurs above 18 years of age.

3) Credit Linked Capital Subsidy Scheme (CLCSS)

The primary objective of CLCSS is to provide funding to Micro & Small Enterprises (MSEs)for technology upgradation byimproving their plant and machinery with state-of-the-art technology. Under this scheme, MSEs are provided with capital subsidy of 15% (up to Rs. 1 cr availed) to induce enhanced technology in specified and approved 51 products. The capital subsidy is offered to MSEs that include village, khadi, tiny and industrial units. The CLCSS scheme can be availed by MSEs having valid (Udyog Aadhaar Memorandum) UAM number.

4) Small Industries Development Bank of India (SIDBI)

Small Industries Development Bank of India (SIDBI) is a financial institution that was launched for the financing and development of the Micro, Small and Medium Enterprise (MSME) sector.Under CGTMSE scheme, they have launched a new loan product named as‘PSB Loans in 59 minutes’. This loan scheme simplifies the approval process, as they provide eligibility letter in less than 59 minutes for MSMEs. Presently, they are providing loan amount that starts from Rs. 1 lakh and maximum up to Rs. 1 cr and the interest rate offered under PSB Loans in 59 minutes is8% onwards.

SIDBI has also initiated in providing various other Direct Loans to its customers and are listed below:

  1. a) SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE)

Primary focus remains on enterprises in manufacturing and service sectors by financing small enterprises that comes under MSME. Minimum loan amount offered is Rs. 10 lakh and maximum goes up to Rs. 25 lakh for the equipment finance purpose. Repayment tenure is marked up to 10 years, including moratorium period of up to 36 months. In case, the term loan amount is up to Rs. 2 cr then it is covered under credit guarantee scheme of CGTMSE.

  1. b) SMILE Equipment Finance (SEF)

Under this scheme, machinery loan is offered through Contactless Platform wherein the minimum business existence should be minimum 3 years. Loan amount offered is maximum Rs. 10 lakh and the repayment period is 72 months, including moratorium period.

  1. c) Loans under Partnership with OEM (Original Equipment Manufacturer)

Loans under partnership with OEM helps MSMEs in the purchase of machinery from OEMs, wherein the loan amount offered is up to Rs. 1 cr and business existence of minimum 3 years is required. Repayment period is up to 60 months, including moratorium period. Loan taken by MSMEs helps them to invest in plant & machinery purchased from OEMs.

  1. d) Working Capital (Cash Credit)

Working capital loan is offered to eligible MSME unit and who already has running term loan from SIDBI. Existing MSMEs that are not availing working capital loan from any other banks. Like other working capital loans, this loan can also be availed the same way to meet the daily occurring expenses of an enterprise.

5) National Small Industries Corporation (NSIC)

National Small Industries Corporation (NSIC) was introduced to promote, support and increase the growth of MSMEs in India. NSIC offers various support services under finance, marketing and technology service. The corporation via its various loan schemes provides long-term loans, credit flow and working capital financing to small enterprises. NSIC has agreed on the Memorandum of Understanding (MoU) with public and private sector banks and providing credit support in form of fund-based and non-fund based limits to MSMEs.

National SC-ST Hub (NSSH) scheme under NSIC

Under NSIC, by Government of India and ministry of MSME has initiated a scheme named as National SC-ST Hub (NSSH)to provide support to the SC/ST entrepreneurs nationwide. Retired or ex-executives from public and private banks are eligible to provide consultation to SC/ST entrepreneurs in availing credit from banks or NBFCs. As per NSIC, for SC/ST Hub, they have made an initial allocation of Rs. 490 cr for the period 2016-2020.The National SC/ST Hub (NSSH) shall provide professional support to the SC/ST enterprises and enable them to successfully participate in public procurement process.

MSMEs are considered as the backbone of Indian economy that needs lot of attention and support for their growth and development. Therefore, with the help of these schemes, SMEs can benefit which eventually will lead them in their business expansion and generate profitability.

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