Top 4 Government Loan Schemes for MSMEs in India

Every business needs capital for survival and expansion. Without capital, no business is sustainable. After all, it’s the oxygen that every business needs to thrive and survive!

For these purposes, the Government of India is always keen to help and encourage more Micro, Small & Medium Enterprises (MSMEs) to spread their wings, and achieve more success and growth. The reason is simple: MSMEs are driving India’s growth and progress!

MSMEs have made massive contributions towards making India what it is today. Currently there are 6.5 crore registered MSMEs in India that are employing 11 crore Indians, and are responsible for almost 30% of India’s GDP. No other sector contributes to India’s overall business and economy than MSMEs, and the growth is only increasing.

However, the COVID-19 pandemic had brought the industry to a halt. There was a lack of access to capital to continue operations and most businesses had to shut down or operate at a lower capacity.

As the country begins its path towards recovery, the Govt of India has introduced several loan schemes to help rejuvenate MSMEs and to get things back on track. The sole purpose of the government is to strengthen MSMEs financially and make them capable of withstanding pressures like a pandemic, generate more business, thereby creating more stable employment, and contributing a lot more towards India’s economy.

Here are a few government-backed loan schemes for MSMEs:

1. MUDRA Loans for Small Business 

Micro-units Development and Refinance Agency (MUDRA) is an organisation established by the government of India that provides business finance to micro-business units. The loans under the scheme are given to small companies and startups. The main aim is to fund the underfunded through the concept of low-cost credit. 

The loans are generally given to micro or small businesses operating in the manufacturing, trading and services sector. There are three types of MUDRA loans based on a business’s current phase:

  • New startups and SMEs can avail upto Rs 50,000 loan – Shishu plan
  • Mid-range SMEs and startups can avail upto Rs 5,00,000 – Kishor plan
  • Established SMEs and startups can avail upto Rs 10,00,000 – Tarun plan

More details about MUDRA and information on how to avail MUDRA loans can be found here –

2. MSME Business Loans in 59 Minutes

SIDBI or Small Industries Development Bank of India launched “MSME loan in 59 minutes” as one of the unique Government Schemes for new businesses, wherein a loan is approved in 59 minutes flat. 

Once the loan is approved, the disbursement process takes 8-9 days.

Under this scheme loans are given for financial assistance and encouragement of MSME growth in the country. Both new and existing businesses can utilize the scheme for financial assistance up to ₹ 1 crore. Loans are provided under a refinancing scheme, wherein five authorized public sector banks will grant the funds and the interest rate will depend on the nature of your business and credit rating.

Documents which are required for availing this loan under 59 minutes are:

  • GST documents
  • Income tax documents
  • Bank account statements for the last 6 months
  • Company ownership documents
  • KYC details of the owner
  • Credit rating/ CIBIL documents
  • Other relevant documents

You can apply for this loan and get more information here –

3. Credit Guarantee Fund Scheme for Micro and Small Enterprises

The CGMSE was first launched in the year 2000 as a monetary support scheme for micro and small enterprises. Launched by the Ministry of Micro, Small and Medium Enterprises (MSME Ministry) and Small Industries Development Bank of India (SIDBI), CGTMSE Scheme offers collateral free loans to small enterprises and businesses that satisfy its eligibility criteria .

The scheme provides working capital loans up to ₹ 10 lakhs without any collateral. However, for all loans above ₹ 10 lakhs and up to ₹ 1 crore, SMEs can provide primary security or mortgage of land and building associated with the business, which is again covered under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Assets created through the loan which are associated with the business are also considered as security when the loan amount exceeds ₹ 10 lakhs.

To learn more about CGTMSE –

4. Emergency Credit Line Guarantee Scheme

The Emergency Credit Line Guarantee Scheme (ECLGS) is a new initiative introduced by the Modi government under the budget 2021 in order to re-energise the MSME sector. The scheme forms a part of the Rs. 20 lakh crore package for existing MSMEs or businesses to help them meet their daily operational expenses and maintain a healthy working capital or cash flow and invest in avenues to keep their businesses functioning.

Businesses need to be registered for GST in order to be eligible for ECLGS. MSME owners do not need to provide additional collateral to secure credit. The rate of interest will depend on the credit rating of businesses.

We hope this helps you get started on your journey to availing the best loan schemes for your business requirements! For more subscribe to our newsletter.