5 Best Government Loan Schemes for Small Businesses in India

Small and medium-sized businesses are critical to a country’s economic success. They not only help a country’s exports, but they also create jobs for millions of Indians. Small-scale industries, which fall within the unorganized sector, employ around 12 crore people in India. Despite their crucial role in the national economy, they often find it challenging to get the right financial aid. 

But today the situation has vastly changed thanks to the numerous resources available for budding entrepreneurs to realize their dream of owning a business. The government has set up various schemes that are aimed at empowering every individual to build their business with minimal hassle. Because it is an established fact that MSMEs are the backbone of any economy and their growth and development should be the core agenda of every government. 

Several industrial financing institutions and banks, both public and private, have developed SME loan solutions to help the MSME sector thrive. The Indian government too supports a number of programmes to help micro, small, and medium-sized businesses get started and grow across the country.

SME business owners can use these loans to start a new firm or expand an existing one. Low-interest rates, minimum documentation, no collateral, and extended repayment terms are all advantages of these loans. The loans are intended to help small businesses become financially viable.

What is an MSME loan?

An MSME loan is a form of business loan that is given to micro, small, and medium-sized businesses for the purpose of beginning a firm, expanding it, or covering other business expenses. MSME loans are unsecured, and obtaining one is usually a simple process. To qualify for this form of loan, you must meet specified eligibility requirements.

Several government programmes, such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), allow financial institutions to provide these loans. This was established by the Government of India, the Ministry of MSME, and SIDBI with the goal of enabling credit flow to the MSME sector without the use of collateral. Under this model, the lender prioritizes project feasibility and disburses credit based solely on the primary security of the financed assets.

If an MSME unit fails to repay a loan, the Credit Guarantee Scheme (CGS) will cover the lender’s loss up to 85% of the outstanding amount in default. To take advantage of the benefits offered by an MSME loan, businesses must meet the qualifying criteria outlined in the programmes.

  • MUDRA – Micro Units Development & Refinance Agency Ltd
  • Refinancing assistance to banks and NBFCs to increase the amount of money available for lending
  • Onward lending to manufacturing, trading, and service businesses, as well as tractor finance, agriculture, and related operations, and two-wheeler loans
  • In addition to financial aid, MUDRA strengthens MSME firms through financial literacy and other social support services.
  • Sishu loan up to Rs. 50000, Kishore loan up to Rs. 5,00,000, and Tarun loan up to Rs. 10 lakhs are the three lending schemes offered by MUDRA.
  • The Credit Guarantee Fund Scheme for Micro and Small Enterprises
  • This program allows you to apply for a loan without putting up any collateral.
  • Retail trade, educational institutions, agriculture, and self-help groups (SHGs) are excluded from the programme, which is open to new and existing MSME units in the manufacturing and service sectors.
  • Technology Upgradation Fund Scheme for the Textile Industry (TUFS)
  • The textile industry is being upgraded and modernised.
  • Both new and existing MSME textile units are eligible.
  • 36 Nodal banks, in addition to SIDBI, have been assigned to disburse cash under this scheme. 
  • Credit Linked Capital Subsidy Scheme (CLCSS)
  • Allow MSME units to upgrade their technology on specific products.
  • For well-established and enhanced technology, a 15% capital infusion is available.
  • The main institutions for money disbursement are SIDBI and NABARD.
  • Nine nodal banks have been added to the system to help it run smoothly.
  • Technology and Quality Upgradation Support to Micro, Small & Medium Enterprise (TEQUP)
  • Designed to encourage the implementation of energy-efficient projects.
  • EET machinery capable of saving 15% or more energy is qualified to request this award.
  • For faster loan disbursement, SIDBI and Nodal banks serve as principal lending institutions.
  • A loan sum of up to 25% of the project cost, or Rs. 10 lakhs, can be obtained.
  • SMILE – To Promote the Make In India Initiative
  • Loans with a Quasi-Equity component
  • This loan is available to new and current MSME units in the manufacturing or service sectors that are expanding.
  • The smallest loan amount is Rs. 25 lakhs.
  • Interest rates start at 8.36% and go up from there.
  • Repayment terms of up to 120 months are available.


MSME loans provide low-interest rates, ensuring that the loan is repaid with the smallest amount possible. This translates into savings when compared to other conservative financial solutions. Furthermore, the majority of MSME loans do not demand collateral. Small enterprises typically use these loans for short-term necessities. Because there is no long-term commitment, the borrower has a certain amount of flexibility. Having a short-term commitment allows you to efficiently manage cash flow and allocate available resources.

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