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10 Business Loans For Startups And MSMEs By The
Indian Government
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Team Inc42
Inc42 Staff
06 Jan'19 17 min read
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The government has launched a 59-minute loan platform that enables easy access
Changes have been observed in the existing schemes for startups and MSMEs
India today is home to more than 39K startups. The Indian startup ecosystem is
producing unicorns at double the speed than before, with multi-billion dollar fundings
from global investors, and celebrating high-profile exits such as the $16 Bn Walmart-
Flipkart acquisition last year. At the same time, the country’s micro, small, and
medium enterprises (MSME) sector comprising 577 Cr companies is beating
challenges of setting up and building the consumer base, among others.
But an idea remains an idea if it does not get the requisite working capital on time.
According to reports, less than 5% of MSMEs have access to formal credit, while
others rely on informal sources to fund their businesses. For Indian startups, while
there are a number of private equity and debt funding options available, to get
funding at the idea or early stage is a challenge.
In a much-needed move to address this gap, the Indian government has rolled out
initiatives to offer business loans for startups and MSMEs through authorised
channels. Among the several MSME schemes for entrepreneurs, one of the most
important ones was the recently-launched59-minute loan platform that enables easy
access to credit for MSMEs.
Also, the Small Industries Development Bank of India (SIDBI) has started lending to
companies directly instead of through banks. These government loans for startups
are at least 300 basis points lower than the ones that are offered by banks. SIDBI
offers long-term loans of up to five years online.
A number of other government startup loans and schemes for entrepreneurs in India
have been introduced in the past few years. Here is a list of some of the most
popular and notable government schemes that offer business loans for startups And
MSMEs in India.
Industry: Sector-agnostic
Eligibility: MSME startups in the manufacturing or services sector that have been
operating for at least three years and have earned cash profits in the last two years
are eligible for the loan. Here are the specific eligibility criteria.
Overview: This MSME scheme for entrepreneurs has been launched jointly by India
SME Technology Services Ltd (ISTSL) in association with World Bank. The main
objective is to implement energy efficiency measures across Indian industries on an
end-to-end basis. Also, it aims to help startups finance purchases of second-hand
machinery/equipment.
The business loans for startups under this scheme meet part costs of:
capital expenditure, including for the purchase of equipment/machinery,
installation, civil works, commissioning, etc.
any other related expenditure required by the unit provided it is not more than
50% of capital expenditure.
The MSME startup has to pay only INR 30,000 and applicable taxes and the
balance fee will be paid by SIDBI to auditors
Up to 90% of the project cost with a minimum loan amount of INR 10 Lakh
and a maximum loan amount not exceeding INR 150 Lakh per eligible
borrower can be granted under this scheme.
Eligible loan amount should not exceed one-fifth of the total turnover of the
applicant unit.
Time period: The repayment period, including the initial moratorium period of up to
six months, shall not be more than 36 months for loans up to INR 100 Lakh and 60
months for loans beyond INR 100 Lakh.
To know more about this startup scheme by the Indian government, click here.
Industry: Sector-agnostic
Overview: The scheme aims to meet the credit requirements of MSME units. The
NSIC has entered into a MoU with various nationalised and private sector banks for
the purpose. Through syndication with these banks, the NSIC arranges for credit
support (fund- or non-fund-based limits) from banks without any cost to MSMEs.
Fiscal incentives: NA
Time period: The repayment period varies depending on the income generated from
the startup and generally extends from five to seven years. However, in exceptional
cases, it can go up to to 11 years.
To know more about this startup scheme by the Indian government, click here.
Fiscal incentives: This MSME scheme for entrepreneurs comes with a number of
benefits, including term loans and/or working capital loan facility up to INR 200
Lakh per borrowing unit. Here are some more details of the scheme:
The guarantee cover provided is up to 75% of the credit facility up to INR 150
Lakh
85% of credit facility for loans up to INR 5 Lakh is provided to micro-
enterprises
80% of credit facility for MSMEs owned/operated by women and all loans to
NER including Sikkim
For MSME Retail trade, the guarantee cover is 50% of the amount in default
subject to a maximum of INR 50 Lakh.
Time period: The credit guarantee will commence from the date of payment of
guarantee fee and will run through the agreed tenure of the term credit in case of
term loans/composite loans and for a period of five years where working capital
facilities alone are extended to borrowers, or for such period as may be specified by
the guarantee trust.
To know more about this startup scheme by the Indian government, click here.
Related Article: 50+ Startup Schemes By The Indian Government That Startups
Should Know About
Industry: Sector-agnostic
Eligibility: Existing small-scale industry (SSI) startups registered with the State
Directorate of Industries that have upgraded their existing plant and machinery with
state-of-the-art technology, with or without expansion, are eligible for this scheme.
Also, new SSI units registered with the State Directorate of Industries that use the
appropriate, eligible, and proven technology, duly approved by the Governing and
Technology Approval Board (GTAB)/Technical SubCommittee (TSC), will be eligible.
Overview: This business loan for startups aims to facilitate technology upgrades by
providing upfront capital subsidies to SSI units, including khadi, village, and coir
industrial units, on institutional finance (credit) availed by them for modernisation of
their production equipment (plant and machinery) and techniques.
Fiscal incentives: The ceiling on business loans for startups under the scheme has
been raised from INR 40 Lakh to INR 1 Cr while the rate of subsidy has been
enhanced from 12% to 15%. Here, the admissible capital subsidy is calculated with
reference to the purchase price of plant and machinery, instead of the term loan
disbursed to the beneficiary unit.
Time period: NA
To know more about this startup scheme by the Indian government, click here.
Industry: Agriculture
Eligibility: All coir processing MSME startups registered with the Coir Board under
the Coir Industry (Registration) Rules, 2008, are eligible for this scheme. Here is the
criteria:
Overview: The scheme is aimed at supporting the establishment of coir units. Banks
will finance capital expenditure in the form of a term loan to meet the working capital
requirements in the form of cash credit. Projects can also be financed by the bank in
the form of composite loans consisting of capex and working capital.
Fiscal incentives: Banks will support project cost of up to INR 10 Lakh plus one
cycle of working capital, which shall not exceed 25% of the project cost. In addition:
Time period: Rate of interest chargeable for the business loans for startups shall be
at par with the base rate. Repayment schedule may not exceed seven years after an
initial moratorium, as may be prescribed by the concerned bank/financial institution.
To know more about this startup scheme by the Indian Government, click here.
Headed by: Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE)
Eligibility: For existing businesses: Borrower should be GST, IT compliant and must
have six months bank statement facility. The business loan eligibility is determined
by a company’s:
a. Income/ Revenue
b. Repayment capacity
c. Existing credit facilities
d. Any other factors as set by lenders (banks)
Overview: Prime Minister Narendra Modi described this initiative last year while
unveiling the 12-point action plan for the MSME sector. The initiative aims at
automation of various processes to loan appraisal in such a way that one gets an
eligibility letter, in-principle approval in less than 60 minutes and chooses the bank
that one may prefer to ease access to credit to smaller and micro enterprises.
Post the in-principle approval, the time taken for business loan disbursement
depends on the information and documentation provided on the platform and to the
banks. Generally, post the in-principle approval, the loan is expected to be
sanction/disbursed in 7-8 working days.
Fiscal Incentives: The contactless business loans for startups are currently
provided for value from INR 1 Lakhs Upto INR 1 Cr. The rate of interest starts from
8% onwards.
Time Period: NA
To know more about this startup scheme by the Indian government, click here.
Headed by: Micro Units Development and Refinance Agency Ltd (MUDRA)
Industry: Sector-agnostic
All kinds of manufacturing, trading and service sector activities can get a MUDRA
loan.
For 2018-19, a target of INR 3 Lakh Cr has been set. Interestingly, the non-
performing assets (NPA) level under the PMMY was only 5.38% as on March 31,
2018 — almost half of the gross NPAs across all sectors in the country, which
crossed 10% in fiscal 2017-18.
> Tarun: Loans above INR 5 Lakh and upto INR 10 Lakh
Generally, loans upto INR 10 Lakh issued by banks to MSMEs are given without
collateral. Also, within these interventions, MUDRA ensures to meet the
requirements of different sectors/business activities as well as business/entrepreneur
segments.
Time period: NA
To know more about this startup scheme by the Indian government, click here.
Industry: Sector-agnostic
Overview: The aim of this scheme is to provide soft loans, in the nature of quasi-
equity, and term loans on relatively soft terms to MSMEs to meet the required debt-
equity ratio for the establishment of new MSMEs and also to enable the growth for
existing ones.
Fiscal incentives:
For the general category, 10% of the project cost, subject to a maximum of
INR 20 Lakh is provided as the loan amount
15% for the enterprises promoted by Scheduled Caste (SC) /Scheduled Tribe
(ST) / Persons with Disabilities (PwD), and women, subject to a maximum of
INR 30 Lakh
Persons belonging to these categories must own a controlling stake (ie 51%
or higher)
Time period: On expiry of three years from the date of the first disbursement, the
outstanding soft loan, together with any dues thereon, shall be converted into a
secured term loan and the entire loan shall carry an applicable rate of interest as per
internal rating of the borrower. The repayment period is generally upto seven years,
inclusive of the moratorium up to one-and-a-half years for the term loan and up to
two years for a soft loan.
To know more about this startup scheme by the Indian government, click here.
Standup India
Launched in: April 2016
Overview: This scheme by the Indian government facilitates bank loans between
INR 10 Lakh and INR 1 Cr to at least one SC or ST borrower and at least one
woman borrower per bank branch, for setting up of a greenfield enterprise. So
far, 3457 online business loans for startups have been sanctioned through the
Standup India platform.
Fiscal incentives:
It offers composite loans between INR 10 Lakh and INR 1 Cr to cover 75% of
the project, inclusive of the term loan and working capital
The stipulation of the loan being expected to cover 75% of the project cost
would not apply if the borrower’s contribution along with convergence support
from any other schemes exceeds 25% of the project cost
The rate of interest would be the lowest applicable rate of the bank for that
category (rating category) not to exceed [base rate (MCLR) + 3%+ tenor
premium]
Time period: This government business loan for startups is repayable in seven
years with a maximum moratorium period of 18 months.
To know more about this startup scheme by the Indian government, click here.
Eligibility: Renewable energy projects such as solar power plants, wind energy
generators, mini hydel power projects, biomass gasifier power plants, etc, for
captive/non-captive use (ie, power generated is sold/supplied to the grid/off-grid).
Overview: The objective of this startup scheme by the government is to assist the
entire value chain of energy efficiency (EE)/cleaner production (CP) and sustainable
development projects which lead to significant improvements in EE/CP/sustainable
development in the MSMEs and which are presently not covered under the existing
sustainable financing lines of credits.
Time period: NA
To know more about this startup scheme by the Indian government, click here.
Since the launch of the Startup India Action Plan and Standup India scheme in
January 2016, and the setting up of the Funds of Funds worth INR 10K Cr, more
than 50 government schemes for small businesses have been put in place to support
early-stage startups in taking off.
These government loans for small-scale industries are a handful of the many
initiatives taken by the Indian government to boost the ease of doing business in the
country. India ranked 77th in 2018 on the World Bank matrix in ease of doing
business.
The government has been working at a macro level to promote entrepreneurship and
opening up international startup corridors between India and the world. To this end,
the Department of Industrial Policy and Promotion (DIPP) also launched the State
Startup Ranking framework, on the basis of which it ranked states on the startup
ecosystems, with Gujarat emerging on top of the chart.
At the micro level, the government’s efforts to offer business loans to startups and
MSMEs will certainly supplement its larger gameplan and enable more
entrepreneurs to turn their ideas into businesses.
Author
Team Inc42
Inc42 Staff
Inc42 Media is a digital media startup known for its end-to-end coverage of the
Indian Startup Ecosystem. Inc42 has published 15,000+ stories so far and touch the
lives of over 10 million people every month. Join us and be the part of the startup
revolution.
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