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MSME Financing – Top Government Loan Schemes

India today, is being viewed as a vibrant and emerging market in the world. Much of this growth can be attributed to the Micro, Small and Medium Enterprises (MSME), which is becoming a pivotal employment source for the Indian population.

Despite its invaluable contribution, the MSMEs often face unfathomable roadblocks in raising working capital and long-term funding. Thankfully, the Government of India, taking cognizance of such funding difficulties, has launched several finance schemes to support these MSMEs.

 MSME Loan Schemes

Though there are multiple schemes available, we shall list some of the top schemes. To avail these loans, one has to complete the MSME Registration online. With the many loan options available to choose from, it can be overwhelming for the entrepreneurs to choose the one that suits them. This article will provide a walkthrough into the modalities of availing these loans.

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

Piloted in the year 2000, the CGTMSE is a collaboration between the MSME ministry and the Small Industries Development Bank of India (SIDBI). This fund offers collateral-free working capital loans up to ₹10 Lakhs for eligible new and established businesses. For loans between ₹10 Lakhs and ₹1 crore, a mortgage of the building and associated land may be required. These loans are financed by various public and private sector banks called the Member Lending Institutions (MLI). The loans provided by MLIs under this scheme are given a guarantee cover up to a certain percentage, for a minimum guarantee fee and annual service fee, that empower the MSMEs to avail the loan without collateral.

MUDRA Loan Scheme

Micro-units Development and Refinance Agency (MUDRA) is a fully owned subsidiary of the SIDBI. The agency assists in refinancing SMEs by partnering with banks, microfinance agencies, and other lending agencies to provide microfinance support to these enterprises.

Possibly the most popular of all the Government loan schemes, MUDRA loans are provided under three categories:

Sishu loans – up to ₹50,000

Kishor Loans – up to ₹5,00,000

Tarun Loans – up to ₹10,00,000

Sishu loans are getting more stimulus to motivate the aspiring youth to take up entrepreneurship.

Stand Up India Scheme

According to the MSME ministry, 80% or more of the Indian MSMEs are run by women or people from socially backward groups. To provide fair access to such marginalized groups, the Government launched the Stand Up India scheme. Under this scheme, women entrepreneurs and entrepreneurs belonging to scheduled castes and tribes can avail of a loan between ₹10 lakh and ₹1 Crore. This composite loan can be availed for up to 75% of the setup cost. These collateral-free loans can be insured with a credit guarantee under the Credit Guarantee Fund Scheme For Stand Up India Loans (CGFSIL). Any Indian woman or SC/ST member above 18 years of age are eligible for this loan. In the case of joint ventures, women or the SC/ST member should hold a minimum of 51% share in the venture to be eligible for this loan.

Apart from the above schemes, there are few other schemes focussing on specific financing needs.

The National Small Industries Corporation Subsidy (NSIC) provides financial assistance for procuring raw materials (indigenous or imported) and marketing support, which the industries can use to improve their competitiveness in the market.

The Credit Link Capital Subsidy Scheme for Technology supports businesses who wish to upgrade their technology, related to any business processes such as manufacturing, supply chain, etc. The Government, through this scheme, aims to reduce the production cost so that the product pricing can be competitive in the local and global markets.

The Government of India understands the contribution of MSMEs to the overall economic growth of the nation. Hence the Government has launched thoughtfully laid out schemes so that the SMEs face no barrier to raise capital and improve their businesses. However, with a plethora of options available, an entrepreneur may get inhibited and not know where to start. A good place to start would be the local banks and much of the services can be availed online as well. Alternately there are several private consultants who can help with MSME registration online. MSMEs can approach either of these channels and get benefitted from these loan schemes.

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