India is a country with 1.33 billion people and it is increasing every day. Now you might question me why am I telling you this! Obviously, you are going to read about the government proposed loan schemes and initiatives for the businesses in India but have you ever thought that when you are thinking of a business, you have a prospective customer base of millions and billions of Indians? You might have or might not but that’s the reality.
Our country is in debt because of the excess of import over export and we import goods from other nation especially the comfort and luxury good because we don’t produce it. We don’t produce or manufacture the good in our homeland because we don’t have enough amount of capital in our bank account. But India is a land of talent and intelligence though hardly we use it. This is the reason why this new government and also the earlier ones have various business loan schemes under them which every new entrepreneur, the proprietor must take benefit of.
In this article, you are going to read about the various government business loan schemes for different types of business that you can do in India and about the importance of a business loan for making India a better place for trade and business.
Business loan without collateral security under CGTMSE scheme
Every prospective entrepreneur in India takes a back foot when they are asked to take a loan and start their business, just because of the collateral that every bank demand. But under CGTMSE scheme which is the Credit Guarantee Fund Trust for Micro and Small Enterprises, you don’t need to provide any collateral for availing the loan for your business. The financial institute and the CGTMSE trust check the viability of the business idea you have and its prospects. On the basis of that, the trust guarantees your credit and then you can avail the amount from the financial institution or the bank. The interest rate will be according to the loan type you are applying for and it also varies from one bank to the other.
The trust will provide the guarantee for your business loan to the bank or financial institution from where you avail the loan. The maximum amount that individual borrowing business unit can get is INR 100 lacs and the trust will provide a guarantee against a major portion of the loan.
This scheme is available for any new as well as existing small scale businesses and also for the micro business industry.
Business loan for budding entrepreneurs in the rural India – Mudra Loan
For being eligible for availing the benefit of this scheme, one needs to be a citizen of India with proper residence and identity proofs. This loan is sanctioned only for the business in rural areas and the business must be under the micro and small business industry. The maximum loan which can be availed under this scheme is of INR 10 lacs. According to the type of business and its financial requirement, the government and the respective body decide the loan amount, and accordingly Mudra loan is divided into three categories –
- Up to 50000 amount of loan comes under Shishu Loan.
- If the loan amount is within 5 lacs, then it will come under Kishor loan
- Finally, if the loan amount sanctioned is up to 10 lacs, then it is a Tarun Loan.
The interest rate differs according to the type of loan –
- For Shishu Loan, it is 10% to 12% p.a.
- For Kishor Loan, it is 14% to 17% p.a.
- For the Tarun Loan, the interest rate is around 16%.
The interest rate differs from one bank to the other but according to the government; it has to be within the range of 11%-18%.
A SMILE from SIDBI
SIDBI is well known for its initiatives toward promoting and helping financially the small scale industries as well as micro and the medium scale business. SMILE is a direct program of SIDBI under which it finances through soft loans or term loans a part of the capital of MSMEs under 25 different sectors listed according to the “Make in India” scheme.
SMILE will finance in the form of debt-equity. The amounts you can avail under this scheme are:
- Term Loan: If you apply for the term loan, then you can get a maximum of 75% of your project cost capital from SIDBI in the form of debt equity with an interest rate around 9.45% to 9.95%.
- Soft Loans: For a soft loan, one can get 10% of the project cost with a maximum limit of 20 lacs. But for the businesses run or promoted by Women, SC/ST/PWD, then they can avail 15% of the project cost with a cap of 30 lacs.
For being eligible for this scheme, the business enterprise needs to be a new one in the manufacturing field though that is not mandatory preferred; it can be also under service sector. If the business is an existing one, it needs to undertake expansion policies to avail this facility. The expansion should be on the basis of modernization, technological up gradation and more workflow and turnover.
Government subsidy scheme for technological advancement of the business – CLCSS
CLCSS or Credit Linked Capital Subsidy Scheme is for those small and medium scale business which wants to upgrade their business turnover with technological advancement. As the world is running on technology, businesses whether small or medium or large scale need technical up gradation time to time.
Under this scheme, the eligible business enterprises can get an amount equal to 15% of the of the capital investment they are going to incur to upgrade and increase their productivity and better work environment. The maximum subsidy that a business unit can get is INR 15 lacs.
Business loan for agricultural units and business in the rural areas – NABARD
NABARD is a common name when you think of any business and about its financing in the agricultural sector. There different types of direct financing schemes from NABARD are as follows:
- You can avail a loan for Food manufacturing or processing business units and park which will be a term loan with a maximum limit of 95% of the project cost. The interest rate will be a summation of risk premium of the market and the prime lending rate at that point of time.
- You can avail loan for building your own cold storage, warehouses.
- For marketing needs, you can avail a loan equal to the 100% of the working capital and the minimum is 75%.
- For various kinds of services and consulting business in the agricultural sector, one can get financing up to 10% of the project cost from NABARD.
There are many other different schemes under NABARD which are specific to the certain sector of the business.
Financing and encouraging the small scale industries – NSIC
India is full of small scale industries and to boost the production and development in India, these business units need the most attention in terms of finance and marketing. NSIC or National Small Industries Corporation Limited mainly promotes the small scale business units; help them in purchasing machinery via hire-purchase facilities.
NSIC helps in the procurement of the raw materials on credit financing and the interest rates on the debt amount hover over 9.5%-10% for dues up to 90 days and about 11% for more than 90 days up to 270 days.
Business loan for mini tool room and training centre – DCMSMEs
The development commissioner of MSMEs of India has launched a scheme for training and building mini tool rooms which are places where different kinds of small machinery and tools are manufactured for use in other business. This scheme is to support these business units directly by providing financing facility up to 75% of the cost of the machinery etc. This scheme indirectly supports the MSMEs industries by providing tools at lower price range.
The estimated cost for setting up a Mini Tool Room and research or training center is around 15 crore out of which 10 crores are for machines and equipment. 90% of the cost would be borne by the DCMSMEs and rest by state agencies.
For availing any of these schemes, you need to meet the individual eligibility criteria set up by the different Government institutes. But there are some factors which are in common, which are as follows:
- You need to have a business plan with all the details of the business, its objectives, costs, revenue estimates.
- If you are expanding the business, then it must have a technological up gradation.
- All these schemes are mostly for the micro, small and medium-scale industries; your business needs to fall in that category.
- You need to have residential proof and being an India along with identity proof.
Importance of business loans by the Government
India is taking the first steps toward becoming the self-dependent country and manufacturing units are the most important in this move. Financing from government and other initiatives for the new business units not only provide financial support to the entrepreneurs but also a boost to the morale of them.
The schemes which you read above are at a nominal interest rate which provides the financial support to the new business units. The collateral requirements are minimal and the process of applying for these loans has been made simpler for better access.
Moreover, the government is not biased to any particular sector, these schemes are available for various sectors of trade and business which inspire and influence prospective entrepreneurs across the country.