Government Loans for Small Business Startup in India

Whether you are collecting ideas for your business, creating a minimum viable product, planning to scale up your business or drafting an expansion plan, the most important thing you need in this success journey is money. Finding investors can be a hectic task if you are a new player in the market.

While there are angel investors in Delhi, Mumbai, Hyderabad, Chennai, Bangalore and other cities in India and 100s of venture capitalists in India, contacting them and getting funds is another story. Seeing this scenario, the government has introduced schemes for small business, micro enterprises, traders, women entrepreneurs and startups in India.

What Kind of Loan Do You Need?

Before going to a financial institution and asking for a loan, you should be very clear about the usage of the money that you will receive. Broadly, business loans can be classified into two major categories. The loans are very specific to what your industry is and what your business requirements are. You can also choose on the basis of the stage of your business, which means ideation stage businesses require a different type of loan while traction stage business requires different.

Working Capital Loan

The money you need to run your business and meet your daily expenses including your internet bills, electricity bills and telephone bills is called Working Capital. It covers all your operational costs. Banks have crafted special schemes to suit your working capital needs. The loans are offered by almost every financial organization whether it be public or private sector banks, NBFCs or Micro Lending firms. The interest rates are typically somewhere between 12% to 18% and are offered for a 12-month tenure. Working capital loans can either be secured or unsecured.

Corporate Term Loan

If you have a good business idea and planning to start up or expand your business, term loans are something you should look into. Term loans are generally large chunks of money borrowed from banks which are to be repaid over a longer period of time. Term loans are secured and granted against company assets and have a longer tenure. However, the interest rates are negotiable. Term loans come with the benefits of taxes and can be converted into equity options.

Three Government Loan Schemes for Small Business

All the below schemes can be used to avail government loans for new business. These government loans for small business in India can be very useful for companies that are in the ideation stage as well as companies that have some initial traction.

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS)

The government of India launched the CGS scheme to help the micro and small enterprise sector avail collateral free small business loans. Whether you already have an existing business or planning to start a new enterprise, loans under The Credit Guarantee Fund Scheme for Micro and Small Enterprises will cover all your business capital needs.

Loan and credit facilities covered under this scheme are both term loans and working capital loans. However, there is a maximum upper limit of Rs 1 crore per borrowing unit, extended without any collateral or third party guarantee.

How to Get Business Loan from Government under this scheme?

You just have to visit your nearest bank and inquire about the details, documentation and eligibility criteria. If you want to know the details about this scheme including documentation required, fees and charges, how to avail, which banks provide loans and more, you can read our upcoming article on CGS scheme.

The MUDRA Loan Scheme

MUDRA loan under the PMMY scheme can be availed for a variety of purposes that deals with income generation and employment creation. Any individual or company can avail the loan by visiting his nearest lending bank or finance company. Below activities are covered under MUDRA loan but are not limited to.

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MUDRA stands for Micro Unites Development and Refinance Agency Limited. It is a Non-Banking Financial Company (NBFC) which supports the development of microenterprise sector in India. MUDRA provides finance and refinances support to Banks and Micro Finance Institutions to encourage lending to micro units a sum of up to Rs 10 lakhs.

How to Get Business Loan from Government under this scheme?

You just have to visit your nearest bank and inquire about the details, documentation and eligibility criteria to avail a loan under PMMY scheme. If you want to know the details about this scheme including documentation required, fees and charges, how to avail, which banks provide loans and more, you can read: How to Get MUDRA Loan Under Pradhan Mantri Mudra Yojana (PMMY)

Stand Up India Scheme

The government of India introduced Stand-Up India scheme to facilitate bank loans between Rs 10 lakhs and Rs 1 crore to at least one Scheduled Caste (SC) or a Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up ventures. The startup may be in manufacturing, trading or service sector.

In the case of non-individual enterprises at least 51% of the shares should be held by either an SC/ST or Woman Entrepreneur. The banks charge low interests and are advised not to exceed more than the base rate (MCLR) + 3% + tenor premium. The loans sanctioned under Stand Up India scheme are repayable in 7 years with a maximum moratorium period of 18 months.

How to Get Business Loan from Government under this scheme?

You just have to visit your nearest bank and inquire about the details, documentation and eligibility criteria to avail a loan under Stand Up India scheme. If you want to know the details about this scheme including documentation required, fees and charges, how to avail, which banks provide loans and more, you can read our upcoming article on this scheme.

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