Top 9 Business Loans for Startups by the Indian Government

The MSMEs and startups require a strong fiscal stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes. Therefore, to promote these enterprises and boost the economy, the government has introduced several schemes. The entrepreneurs of the MSMEs and startups can borrow funds in the form of a business loan through any of these schemes offered by the government that matches their requirements. This article elucidates the best government business loan schemes for startups to end our research once and for all.

Here's a list of 9 best startup business loans offered by the Government of India:

1. National Bank for Agriculture and Rural Development (NABARD)

2. Pradhan Mantri Mudra Yojana

3. Credit Guarantee Scheme

4. Stand Up India Scheme

5. Coir Udyami Yojana

6. Market Development Assistance

7. Bank Credit Facilitation

8. Sustainable Finance Scheme

9. Udyogini

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In order to catalyse startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India, the Government of India launched an initiative in 2016, called 'Startup India'. It is the government's flagship initiative that rolled out several programs intending to support entrepreneurs and transform the country into a country of job creators, instead of job seekers.

1. National Bank for Agriculture and Rural Development (NABARD):

National Bank for Agriculture and Rural Development, popularly known as NABARD, is a development bank that primarily focuses on the rural sector of India. It encourages farmers to take up projects in selected areas by offering subsidies to a portion of the total project cost, making it one of the critical financial institutions in the country. It is responsible for developing small-scale industries, cottage industries, and other rural projects. All these projects aim at enhancing capital investment, sustained income flow, and employment areas of national importance. Besides, NABARD has been a channel partner of the government in some of the schemes that provide subsidies to these projects. As and when the subsidy is received, it is passed on to the financing banks. Some of these schemes are:

• New Agricultural Marketing Infrastructure (AMI) sub-scheme of Integrated Scheme for Agricultural Marketing (ISAM)

• Agri Clinics and Agri-Business Centres Scheme (ACABC)

• National Livestock Mission - Entrepreneurship Development and Employment Generation (NLM-EDEG)

• Dairy Entrepreneurship Development Scheme (DEDS)

• Commercial production units of organic inputs - National Project on Organic Farming (NPOF)

• GSS (Government Sponsored Scheme) - Ensuring End Use of Subsidy Released

• Interest Subvention Scheme

2. Pradhan Mantri Mudra Yojana:

Pradhan Mantri Mudra Yojana is a scheme launched by Hon'ble Prime Minister Narendra Modi in 2015 for providing loans up to Rs 10 Lakhs to the non-corporate, non-farm small, and medium enterprises. These loans are classified as Mudra loans under Pradhan Mantri Mudra Yojana. Mudra loans are typically offered by commercial banks, Small Finance Banks, Regional Rural Banks (RRBs), Micro-Finance Institutions (MFIs), and Non-Banking Financial Companies (NBFCs). The borrower can apply either through any of these lenders or through the online portal www.udyamimitra.in. Under the aegis of Pradhan Mantri Mudra Yojana, MUDRA has created three products, namely 'Shishu' that covers loans up to Rs 50,000, 'Kishore' that covers loans above Rs 50,000 and up to Rs 5 Lakhs, and 'Tarun' that covers loans above Rs 5 Lakhs and up to Rs 10 Lakhs, to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth. Individuals aged between 18 to 65 years can apply for a Mudra loan for a new or existing unit without any collateral or third-party security at an affordable interest rate. Moreover, women entrepreneurs can get loans at discounted interest rates.

3. Credit Guarantee Scheme:

The government of India, MSME, and Small Industries Development Bank of India (SIDBI) have launched Credit Guarantee Scheme (CGS) for Micro and Small Enterprises. The main purpose of the scheme was to strengthen the credit delivery system and to facilitate the flow of credit to the MSME sector, create access to finance for unserved, under-served, and underprivileged, making the availability of finance from conventional lenders to new generation entrepreneurs. The lenders are mainly public banks, private banks, foreign banks, and regional rural banks. Credit Guarantee Scheme has been instrumental in providing guarantee cover to collateral and/or third-party guarantee free credit facilities extended by eligible Member Lending Institution [MLIs] to MSEs, for over the past two decades. Any existing or startup MSMEs in manufacturing or service activities can apply for a Credit Guarantee Scheme. However, self-help groups, retail trading companies, agricultural institutions, training institutions, etc. are excluded from the scheme.

4. Stand Up India Scheme:

The Stand Up India Loan was introduced by the government of India with the objective to facilitate startup loans between 10 Lakhs and 1 Crore to at least one Scheduled Cast (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up a greenfield enterprise. The greenfield enterprise in manufacturing, services, agri-allied activities, or the trading sector with at least 51% of the shareholding and controlling stake held by either an SC/ST or woman entrepreneur can apply for the Stand Up India Scheme. It should be noted that the loan under the scheme is available for only greenfield projects. Furthermore, the borrower should not be in default to any bank/financial institution. The loan is offered in a composite format, i.e. inclusive of term loan and working capital, for up to 85% of the project cost that can be repaid in up to 7 years with a maximum moratorium period of 18 months.

5. Coir Udyami Yojana:

Coir Udyami Yojana is another subsidy scheme launched by the government of India. It is offered for setting up of coir units with project cost up to Rs 10 Lakhs plus one cycle of working capital, which shall not exceed 25% of the project cost. Under the Coir Udyami Yojana, working capital is not considered for subsidy. So, the rate of subsidy is 40% of the project cost, bank credit is 55% of the project cost, and the beneficiary's contribution is 5% of the project cost. Any individuals, Self-Help Groups, Non-Governmental Organisations, institutions registered under Societies Registration Act 1860, Production Co-operative Societies, Joint Liabilities Group, and charitable trusts can apply for the scheme. The interest rate chargeable is equal to the base rate, and the repayment schedule must not be more than 7 years after the first moratorium. The loan availed under the scheme is covered under Credit Guarantee Trust Fund Scheme, and the guarantee fee for the coverage will be borne by the beneficiary of the bank. The beneficiary does not have to provide any collateral, security, or guarantor. However, if the project is already under the subsidy of any other scheme launched by the central or state government, then the project will not be eligible for the Coir Udyami Yojana.

6. Market Development Assistance Scheme:

The Indian Government's Ministry of Commerce is currently operating the Market Development Assistance Scheme intending to encourage exporters (including MSMEs exporters) to access and develop overseas markets. The Market Development Assistance Scheme (MDAS) offers to fund for participation in international fairs, study tours abroad, trade delegations, publicity, etc. The scheme also provides direct assistance under MDA for small-scale units for individual sales-cum-study tours, participation in fairs, exhibitions, and publicity. The SIDBI manages the scheme of direct assistance for financing activities relating to the marketing of MSME products. The Office of Development Commissioner (MSME) has an existing scheme for participation in international fairs, whereby MSME entrepreneurs are encouraged to display their products at international exhibitions abroad. MSME Development Organisation provides exhibition space and shipment of exhibits ex-Mumbai free of cost for this purpose.

Proposed Scheme:

As part of the comprehensive policy package for the promotion and development of MSMEs, it was decided that the Small Industries Development Organisation should have a Market Development Assistance (MDA) scheme similar to the one obtained in the Ministry of Commerce.

In recognition of the fact that MSMEs exporters need to be encouraged in their efforts at tapping and developing overseas markets and MSME Development Organisation's participation in international fairs, if coupled with the presence of actual exporters, would lead to a substantial increase in export business, it was decided to operate a new scheme called MSME Exporters Market Development Assistance (MSME-MDA) Scheme.

Here are the primary objectives of the scheme:

• To encourage Small & Micro exporters to tap and develop overseas markets.

• To increase participation of representatives of small/ micro manufacturing enterprises under MSME India stall at International Trade Fairs/ Exhibitions.

• To enhance export from the small/ micro manufacturing enterprises.

• To popularise the adoption of Bar Coding on a large scale.

The scheme offers to fund for:

• Participation by manufacturing Small & Micro Enterprises in International Trade Fairs/ Exhibitions under MSME India stall.

• Sector-specific market studies by Industry Associations/ Export Promotion Councils/ Federation of Indian Export Organisation.

• Initiating/ contesting anti-dumping cases by MSME Associations.

• Reimbursement of 75% of the one-time registration fee (w.e.f. 1st January 2002) and 75% of annual fees (recurring) (w.e.f. 1st June 2007) paid to GSI (Formerly EAN India) by Small & Micro units for the first three years for bar code.

7. Bank Credit Facilitation Scheme:

The National Small Industries Corporations (NSIC) has entered into a Memorandum of Understanding with several nationalised and private sector banks to fulfil the credit requirements of the MSME units. The NSIC facilitates MSMEs in accessing fund-based and non-fund-based credit support from the banks. It also assists MSMEs in the completion of the documentation for submitting the proposals to the banks and does the follow-up with the banks. The NSIC does not charge any fees to the MSMEs for this handholding support. The loan repayment tenure for the startups may vary depending on their income. However, it typically ranges between 5 to 7 years. In an exceptional case, it can be extended up to 11 years.

8. Sustainable Finance Scheme:

The Small Industries Development Bank of India (SIDBI) has introduced the Sustainable Finance Scheme for funding sustainable development projects that contribute energy efficiency and cleaner production but are not covered under the international or bilateral lines of credit. One can apply for the scheme for all the new or existing sustainable development projects such as renewable energy projects, Bureau of Energy Efficiency (BEE) star rating, green micro-finance, green buildings, eco-friendly buildings, etc. Funding is provided for the new or existing MSMEs that invest in waste management. In the case of existing units, a satisfactory track record of past performance and sound financial position are mandatory. Besides, the borrower should not be in default to any financial institution.

9. Udyogini Scheme:

Udyogini Scheme or Udyogini Yojana was implemented by the Women Development Corporation under the Government of India. The scheme aims at the welfare and development of Indian women entrepreneurs. It provides financial support to women for startups and existing businesses, thereby motivating entrepreneurship amongst poor women. Several banks offer this scheme to aspiring women entrepreneurs. The loan is offered at a competitive interest rate without any processing fee. Depending on the case, a loan is offered at a discounted interest rate or even without interest. The women entrepreneurs do not have to provide any collateral or guarantor. Only women entrepreneurs with an annual income of less than 1.5 Lakhs can apply for the scheme. However, there is no income limit for widowed or disabled women. The maximum loan amount that can be availed under the scheme is Rs 3 Lakhs, and the repayment tenure is typically 6 to 7 years. Apart from offering financial support, the scheme also offers skill development training programs for women.

To Conclude:

The Government of India has been constantly motivating new entrepreneurs by introducing several credit schemes that can be availed easily at an affordable cost. If you are planning to avail of any of the schemes discussed above, make sure you prepare a detailed business plan with a summary of potential growth and financial returns expected. Submitting a clear plan with your application will create a strong impression and help you raise maximum funds for the venture.

Warm Regards,
Ketki Jadhav
Content Writer