Struggling to Get A Business Loan in India? Here Are Your Options

Micro, Small, and Medium businesses always have a scope of growth. However, the sudden pandemic in 2020 adversely affected the businesses and disrupted their essential workings. The sudden halt due to the pandemic knocked off MSMEs’ revenues and accounts and affected their hope of survival. In such a situation, the Government came forward to help the MSMEs keep their businesses afloat.

MSMEs, also called as  Micro, Small and Medium Enterprises primarily deal in manufacturing, production, processing, or preservation of commodities and goods. They play an essential role in India’s development in various fields like the requirement of low investment, mobility through the locations, flexibility in operations, low rate of imports, and a primary contribution to domestic production.

MSMEs have been the most affected by the pandemic, which has turned their balance sheets negative. In India, the business generated by MSMEs makes up almost half of the country’s GDP. Therefore, the Government has come up with some relief measures.

Monetary relief for MSMEs

To help MSMEs and rescue them from defaults, the Government has come up with schemes and monetary reliefs in the form of collateral-free loans, subordinate equity, and debts included in the Fund of Funds scheme (FoF). In light of the scheme, the Finance Minister Nirmala Sitharaman has confirmed that banks have provided loans amounting to INR 1.27 lakh crores. This figure is a collective amount of the loans sanctioned by public sector banks, non-banking financial companies, and private sector banks.

There are more than 63 million small and medium enterprises in India. Thus, the country is largely dependent on MSMEs for GDP growth. Many MSMEs using traditional methods in the daily workings of their business have had to upgrade due to the pandemic. Therefore, adapting to digitization to reinvent businesses is essential.

According to CRISIL, a global analytics company, the MSMEs in India are unable to deal with the transient working capital challenges as compared to large and medium enterprises. Hence, to help MSMEs to overcome the situation, the Government has come up with loan schemes and has encouraged financial institutions and banks to sanction the loans as required by MSMEs.

These loans can be taken via government loan schemes, non-banking financial institutions, and banks. A few financial technology enterprises have also stepped forward to provide small loans.

MSME Loan Schemes

The Government has launched five MSME loan schemes for the development and betterment of MSMEs. The small businesses can execute their revised business plans and strategies, while existing MSMEs can grow their business by availing of the schemes given below:

  1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
  2. Pradhan Mantri Mudra (Micro Units Development and Refinance Agency Ltd) Yojana (PMMY)
  3. National Small Industries Corporation (NSIC)
  4. SIDBI Make in India Soft Loan Fund for Micro, Small, and Medium Enterprises (SMILE)
  5. Credit Linked Capital Subsidy Scheme (CLCSS)

Detailed information on the above MSME loan schemes:

  1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):

If you are having difficulties finding a loan for your business, CGTMSE is a great way to avail MSME loan.

It can be tough for MSMEs to obtain a business loan due to a lack of collateral. Hence, the Government has come up with this scheme to provide a business loan up to 2 crores without any requirement of collateral.

Objective:

Most first-generation entrepreneurs will get bank loans without the need of collateral or third party guarantees. CGTMSE focuses on this objective and has introduced “Hybrid Security” product providing guarantee cover for the credit facility not covered by collateral security.

Under this scheme, the lender gives primary importance to the viability of a project and secure the loan facility on the basis of security of the assets financed.

Credit Guarantee:

Category Maximum Credit Facility
Up to INR 5,00,000 Above INR 5,00,00 and up to INR 50,00,000 Above INR 50,00,000 up to INR 200 lakh
Micro Enterprises 85% of the loan amount subject to a maximum of INR 4.25 lakh 75% of the loan amount in default subject to a maximum of INR 37.50 lakh 75% of the amount in default subject to a maximum of INR 150 lakh
Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility upto  5 lakh to micro enterprises) 80% of the loan amount in default subject to a maximum of INR 40 lakh
All other category of borrowers 75% of the loan amount in default subject to a maximum of INR 37.50 lakh

 

Who can Avail the scheme?

New as well as existing Micro and Small enterprises, including Service Enterprises are eligible to be covered.

Lenders:

Commercial banks (all sectors) select regional rural banks and National Bank for Agriculture and Rural Development.

Documents required:

  • Establishment of business entities which should be under appropriate eligible category.
  • Business project report including Business model, cost and other financials, and promoter profile.
  • Submission of CGTMSE loan application form. After which the lender will process your application and sanction of the loan.

Pradhan Mantri Mudra (Micro Units Development and Refinance Agency Ltd) Yojana (PMMY):

The Government has approved banks and non-banking financial companies to give Mudra loans to businesses under Mudra Enterprises. It is a loan for businesses without security. The micro-units get a business loan up to ₹10 lakhs.

This scheme offers loans in 3 categories mentioned below:

Shishu Mudra Yojana: This scheme offers loans up to INR 50,000 and focuses on the loan aspect which can be used for purposes like modernization, working capital, equipment, expansion, etc. It can be availed by:

  • Self-proprietors
  • Micro enterprises
  • Service sector firms
  • Repair shops
  • Truck owners
  • Vegetable vendors
  • Micromanufacturing units

Kishore Mudra Yojana: Offering loans from INR 50,000 to INR 500,000, the scheme focuses on the growth rate and needs of an enterprise. It can be availed by:

  • Non-Corporate Small Business Sector (NCSBS)
  • Shop Owners and Traders
  • Transport Service Providers
  • Mechanics and Repair Shop Owners
  • Food Service Owners
  • Artisans and Textile Workers
  • Personal service provider
  • Machine operators
  • Agriculture-allied businesses

Tarun Mudra Yojana: Offering loans from INR 500,000 to 10,00,000, loans under this scheme can be used for expansion, buying equipment, renovation, and other purposes similar to the above schemes.

Objective:

MUDRA loans are provided for a variety of purposes such as generation of income and employment. It comes with an objective of promoting entrepreneurship amongst the millennials. It focuses on the growth of micro enterprises under Shishu, Kishore, and Tarun category units.

Credit Guarantee:

The credit facility in MUDRA is of two types:

  • Micro Credit Scheme (MCS) for loans up to 1 lakh finance through MFIs.
  • Refinance Scheme for Commercial Banks / Regional Rural Banks (RRBs) / Small Finance Banks / Non-Banking Financial Companies (NBFCs).

Who can Avail the scheme?

  • Non-corporate and non-farm micro enterprises.
  • Traders, Shopkeepers, Vendors and other Services sector activities.
  • Equipment funding for Micro Units.
  • Transport vehicles.
  • Tractors, tillers and two-wheelers for commercial use only.

Lenders:

Reginal rural banks, Commercial banks, Cooperative banks, small finance banks, NBFCs, and mutual fund institutions.

Documents required:

  • Identity proof
  • Address proof
  • Passport-sized photos
  • Quotations of machinery and other items
  • Proof of business identity
  • Business address proof

National Small Industries Corporation (NSIC):

The NSIC business loan scheme provides two types of credit facilities for Micro, Small, and Medium Enterprises to grow their business:

    1. Raw material assistance: In this, financial help to MSMEs is provided from the domestic market or from a foreign country to buy raw materials.
    2. Marketing assistance: In this, financial help to MSMEs for marketing and growing of the business is provided to compete in the market.

Objective:

The objective is to meet the financial needs of MSMEs and provide them integrated support services.

Credit Guarantee:

Fund and non-fund-based credit up to INR 5 lakhs.

Who can Avail the scheme?

All medium and small enterprises with a Udyog Aadhaar Memorandum are eligible.

  • MSMEs which come under the turnover ranging between INR 5 crore or more and up to INR 250 crore.
  • Enterprise has a successful operation for the last 3 years.
  • Under collateral for cash credit loans, banks require comprehensive details of the business and its feasibility.
  • Past loan repayment record, if applicable
  • Good CIBIL score

Lenders:

Nationalised and private sector banks.

Documents required:

  • Duly filled application form with passport-sized photographs
  • Identity Proof
  • Income Proof
  • Business address proof
  • Address Proof
  • Age Proof
  • Asset and Liability Statement
  • Copy of SSI registration certificate
  • Profile of the Unit
  • latest income tax returns
  • Last 3 year’s Balance Sheet with IT / ST returns
  • Projected Balance Sheet for the next 2 years

SIDBI Make in India Soft Loan Fund for Micro, Small, and Medium Enterprises (SMILE):

A soft business loan is given to MSMEs; a quasi-equity and a term loan is provided on versatile terms for these businesses to create new units and grow their existing units. The minimum loan that a borrower can get is INR 25 lakhs with a valid Aadhaar.

Objective:

This scheme focuses on identifying 25 sectors under the Make In India programme and deserving proposals are provided support on merit.

Credit Guarantee:

Minimum loan from INR 25 lakhs.

Who can Avail the scheme?

New Enterprises in the manufacturing as well as service sector and existing enterprises who want to expand their operations can apply for SMILE. All medium and small enterprises with a Udyog Aadhaar Memorandum are eligible.

Lenders:

SIDBI

Documents required:

  • Identity proof
  • Address proof
  • Passport-sized photos
  • Quotations of machinery and other items
  • Proof of business identity
  • Business address proof

Credit Linked Capital Subsidy Scheme (CLCSS):

Under this scheme, the Government provides financial aid in the form of credit facilities to MSMEs to upgrade their technology, strategies, infrastructure, etc., for various manufacturing aspects such as exports. A 15% of capital subsidy is provided to MSMEs to fund its business.

Objective:

It focuses on providing support and upgradation of technology of small enterprises and reduce the overall loan burden by providing subsidy. It also aids the growth of rural industries.

Credit Guarantee:

Upfront capital subsidy of 15% on institutional finance up to INR 15 Lakhs.

Who can Avail the scheme?

It is available for both new and existing enterprises. All medium and small enterprises belonging to 51 sub-sectors mentioned by Ministry of MSME with a Udyog Aadhaar Memorandum are eligible.

Lenders:

12 Nodal banks including SIDBI and NABARD.

Documents required:

  • Identity proof
  • Address proof
  • Passport-sized photos
  • Quotations of machinery and other items
  • Proof of business identity
  • Business address proof

The MSME loan schemes introduced by the government focuses on sectors that require financial support to keep their basic facilities working and purchase equipment, raw materials, paying salary, enhancement of inventory, etc. The MSME loan schemes are here to meet various needs of micro to medium sector enterprises. Available at affordable interest rates, these loans can be repaid in easy EMIs and come with minimum eligibility and documentation requirements.

The schemes including Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Pradhan Mantri Mudra (Micro Units Development and Refinance Agency Ltd) Yojana (PMMY), National Small Industries Corporation (NSIC), SIDBI Make in India Soft Loan Fund for Micro, Small, and Medium Enterprises (SMILE), and Credit Linked Capital Subsidy Scheme (CLCSS) have opened up opportunity for more MSMEs to continue their business smoothly and many new entrepreneurs to open their enterprise with easy funding.

As covid-19 disrupted many businesses and their workings, it also became tough to get loans for the basic necessities line raw material, infrastructure, etc. With the above mentioned MSME loan schemes, now several Micro, Small and Medium Enterprises can continue smooth sailing of their business procedures without the risk of closing them permanently and losing business.

Therefore, the government is focusing on encouraging the rise in the formation of new MSME businesses and increasing growth of existing MSMEs by launching these schemes.

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