Different Types of Loans for Small Business in India

Ever since the Start-up India campaign was announced in the year 2015, the number of new Micro, Small & Medium Enterprises (MSMEs) has been on the rise. An economy’s growth depends on MSME’s as it has created many job opportunities or we can say employment to millions of people in our country, which in turn plays a vital role in contributing to the GDP of the country. MSME has maintained a balance between local development and income equality.

MSME is known as the India’s Engine of growth as it has created various job opportunities across the country.

MSMEs are part of the organized as well as the unorganized sectors. Government has come up with Top 6 Loans –

  • PSB/MSME Loan in 59 Minutes
  • Pradhan Mantri MUDRA Yojana (PMMY)
  • Stand-Up India
  • SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
  • Credit Guarantee Scheme (CGS)

Let’s explain each Loan in Brief-

  1. PSB/MSME Loan in 59 Minutes

    It is very beneficial for business individuals to apply for Business loan at interest rate of 8.50% onwards. This initiative was taken to make MSME business run more smoothly without waiting for a long period of time. PSB Loans approves loans in 59 mins if the concern party meets eligibility criteria as mentioned by government. It has reduced the 30 long day process to 59mins and expected to disburse the sanctioned amount within 7-8 days.

    What are the eligibility criteria for PSB/MSME loan?

    The borrower must have –

    1. Login ID of psbloasnin59minutes.com,
    2. GST & IT compliant and
    3. last 6 months’ bank statement.

    The following points are mentioned below-

    • Income/Revenue
    • Repayment Capacity of the Borrower
    • Existing credit facilities
    • Other factors set by the Financial Lender

    What are the minimum and maximum loan amount one can borrow through PSB portal?

    • The Loan Amount starts from Rs 1 lakh to Rs 5 crore.

    Does the borrower need to provide collateral for PSB Loans?

    • It is not necessary for the borrowers to provide security or a collateral for PSB Loans in 59 minutes.
  2. Pradhan Mantri MUDRA Yojana (PMMY)

    Mudra Yojna offers loan up to Rs 10 Lakh without asking the borrowers any collateral security at affordable interest. The repayment tenure is 5 years and processing fees is NIL. The interest rate might vary from bank to bank depending upon individual’s profile and business requirement.

    Mudra Yojna has 3 funding options –

    • SHISHU Loan: Loans up to Rs. 50,000 (For start-ups and new businesses)
    • KISHOR Loan: Loans from Rs. 50,001 to Rs. 5,00,000 (For buying equipment/machinery, raw materials, business expansion for existing enterprises)
    • TARUN Loan: Loans from Rs. 500,001 to Rs. 10,00,000 (For established businesses and enterprises)

    Eligibility criteria – All businesses including proprietary concern, partnership firm, Private Ltd., Public Company and other legal entities are eligible to apply for a loan under this scheme.

  3. Stand-Up India

    It was initiated by government to fund SC/ST and women entrepreneurs of the society to start their own business. The aim of this scheme is to help banks in offering loans between Rs 10 Lakh and Rs 1 Crore to at least one SC/ST applicant and one women entrepreneur, per bank branch in enabling them to start their own business.

    Eligibility criteria – Those businesses engaged in trading, manufacturing or other sectors relating to services are eligible to avail loan under this scheme. If the business is not an individual undertaking, then a minimum of 51% of the shares must be held by an individual who is a woman or who belongs to Scheduled Caste/ Scheduled Tribe.

  4. SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)

    SIDBI Make in India Loan for Enterprises (SMILE) was also launched by Mr. Jaitley. The aim of this scheme is to provide soft loans, to meet the required debt-equity ratio for the establishment of new MSMEs and also to enable the growth for existing ones. The interest rate offered under SMILE scheme is 8.36% onwards.

    Eligibility Criteria –

    • Emphasis will be on covering new enterprises in the manufacturing as well as services sector
    • The emphasis will however, be on financing smaller enterprises within MSME
    • Existing enterprises undertaking expansion, to take advantage of new emerging opportunities, as also undertaking modernization, technology upgradation or other projects for growing their business will also be covered.
    • Minimum Loan Size – ₹ 10 lakh for Equipment Finance & Others: ₹ 25 lakh.
  5. Credit Guarantee Scheme (CGS)

    This is a loan scheme that is launched by the government of India that allows for funding through loans without collateral to those businesses that fall under the MSME sector. The loans under the scheme can be granted to both new and existing enterprises. The Credit Guarantee Fund Trust is a trust that has been established by the Ministry of MSMEs and the Small Industries for the purposes of implementing the CGFMSE scheme. The funding under this scheme can provide for working capital loans up to Rs. 200 lakhs with preference to eligible women entrepreneurs.

    Eligibility Criteria – Undertakings who are into manufacturing activity like retail trade, educational institutions, self-help groups and training institutions. Further, businesses which are in the service sector are also eligible to avail of funding under this loan scheme.