Business Loan by Government: A Comprehensive Guide-2024

Business Loan By Government

India is emerging as a global superpower, with Micro, Small, and Medium Enterprises (MSMEs) playing a crucial role in its socio-economic development. These businesses, both organized and unorganized, significantly contribute to India’s GDP and exports while generating employment opportunities. In 2024, India had 7.9 million registered MSMEs, contributing 33% to the GDP and creating over 120 million jobs in FY’24.

To support entrepreneurs in establishing or expanding their ventures, the Government of India has introduced various initiatives, including loans, subsidies, and improved business ease. Financial support through government loans is vital for the success of these businesses.

This article explores the top government business loans in India, detailing interest rates, eligibility criteria, required documents, and more.

Best Business Loans By Government and Schemes for Businesses and Startups

The Government has implemented robust policies to boost the growth of the Indian economy, including popular startup business loans through Banks and Non-Banking Financial Companies (NBFCs).

Depending on the business type, various government business loans can be availed. Here are India’s top 6 government loan schemes in 2024.

Loan Scheme	Description	Interest Rates	Loan Amount	Tenure	Special Features
Pradhan Mantri Mudra Yojana (PMMY)	Loans for small and micro non-corporate, non-farming businesses.	Starting from 7.30%	Up to INR 10,00,000	12 months to 7 years	Collateral-free low-cost credit, no processing fee.
MSME Loan Scheme	For new and existing micro, small, and medium enterprises for working capital or business expansion.	Starting from 7.65%	INR 50,000 to several crores.	Up to 15 years	Interest rates starting from 7.65% onwards.
National Small Industries Corporation (NSIC) Subsidy	Aids in developing MSMEs by providing funds for technology, market, finance, etc.	At the Bank’s discretion.	Depends on the scheme	Depends on the scheme	Various benefits include assistance in documentation, capital loans, and technical support.
Credit Guarantee Fund Trust For MSE (CGTMSE)	Offers credit guarantees to financial institutions offering loans up to INR 2 crores.	Depends on the bank	Upto INR 2 crores	Depends on the bank	Coverage up to INR 2 crores, fee concessions for SC/STs, 85% coverage for women.
Stans Up India	Empowers businesses run by women and SC/ST categories	Bank’s Base Rate + (MCLR) + 3% + Tenor Premium	INR 10 Lakh to INR 1 crore	Up to 7 years	Interest rate structure, tenure up to seven years, can cover up to 85% of the project cost.
Public Sector Bank (PSB) Loans	Online portal for MSMEs to apply for loans easily.	Starting from 8.59%	INR 10 Lakh to INR 5 crore	1 to 15 years	Apply online, approval in 59 minutes, sanctioned in 7 to 12 days.

Also read:

• How to Start a Business 
• प्रत्यक्ष लाभ अंतरण (डीबीटी)

1) Pradhan Mantri Mudra Yojana (PMMY)

PMMY is one of the best Business Loans by the Government. The Mudra Loan (Micro Units Development & Refinance Agency Ltd.) is a scheme proposed and managed by the PMMY. The Mudra loan was introduced to give loans to small and micro companies that are non-corporate and non-farming.

This is one of the schemes for availing business loans by the Government without security. With the motto to “Fund the Un-funded,” you can avail of this loan from all the private/public sector banks, NBFCs, and Regional Rural Banks (RRBs). This loan can be used by business owners, startups, MSMEs, and self-employed professionals.

All Non-Corporate Small Businesses (NCSB) in the manufacturing, service, and trading sectors are eligible for Mudra loans. Some examples of the NCSB:

• Small Manufacturing businesses
• Small Services Businesses
• Shopkeepers, Food Service Units, and fruit/vegetable vendors
• Machine and truck operators
• Repair shops
• Artisans, etc.

1. Eligibility Criteria for Mudra Loan

All NCSBs that satisfy the below-mentioned criteria are eligible for Mudra loans.

• The applicant should be between 18 to 65 years of age
• They should not have any past loan defaults, with a good loan repayment history

2. Loan Categories

Mudra Loans are offered under three categories.

• Shishu Loans – Upto INR 50,000
• Kishor Loans – INR 50,000 to INR 5,00,000
• Tarun Loans – INR 5,00,000 to 10,00,000

3. Special Features of Mudra Loan

Here are some of the special features of the Mudra loan under the PMMY scheme.

• Collateral-free loans
• low-cost credit option
• No processing fee or repayment charges
• Interest rates start from 7.30% onwards
• Tenure can be from 12 months to 7 years
• Loan amount maximum of INR 10,00,000

4. Mudra Loans Interest Rates by Different Banks

The table below compares the different interest rates of various banks.

Bank	Interest Rates	Tenure
State Bank of India (SBI)	Linked to MCLR	1 to 5 years
IDBI Bank	Linked to Bank’s Base Rate and Rating	1 to 5 years
UCO Bank	8.85% p.a. onwards	At the bank’s discretion
Bank of Baroda	9.65% p.a.	At the bank’s discretion
Indian Overseas Bank	As per the bank’s guidelines	At the bank’s discretion
Union Bank of India	7.30% p.a. onwards	At the bank’s discretion
HDFC Bank	As per the bank’s guidelines	At the bank’s discretion
Canara Bank	As per the bank’s guidelines	Up to 7 years
Central Bank	As per the bank’s guidelines	At the bank’s discretion
Allahabad Bank	As per the bank’s guidelines	1 to 5 years
Bank of Maharashtra	9.25% p.a.	At the bank’s discretion
Bank of India	Linked to MCLR	1 to 7 years
Vijaya Bank	9.65% p.a.	At the bank’s discretion
Oriental Bank of Commerce	As per the bank’s guidelines	At the bank’s discretion
Tamilnadu Mercantile Bank	8.95% p.a. onwards	1 to 7 years

2) MSME Business Loan By Government Scheme

The MSME scheme is introduced for business loans by the Government of India. It can be availed by new and existing micro, small, and medium enterprises. It provides businesses with working capital that is used for running the business. It aids in purchasing new equipment, maintaining inventory, paying salaries, or business expansion.

1. New Definition of MSME (May 2020)

Any manufacturing and service industry can be classified as an MSME if they meet the below-mentioned criteria.

Enterprises	Investment	Turnover
Micro	Not exceeding INR 1 crore	Not exceeding INR 5 crore
Small	Not exceeding INR 10 crore	Not exceeding INR 50 crore
Medium	Not exceeding INR 20 crore	Not exceeding INR 100 crore

2. Special Features of the MSME Loan Scheme

• MSME Business Loan interest rates starting from 7.65% onwards
• Loan amounts starting from INR 50,000 to a few crores
• Tenure can go up to 15 years
• The processing fee depends on the Bank

3. MSME Loans Interest Rates by Different Banks

Here is a list of interest rates for MSME loans offered by different banks.

Bank	Interest Rates
Allahabad Bank	At the Bank’s discretion
Oriental Bank of Commerce	10.70% p.a. onwards
Andhra Bank	At the Bank’s discretion
Central Bank of India	11.25% p.a. onwards
Indian Bank	9.75% p.a. onwards
Punjab and Sind Bank	9.95% p.a. onwards
Punjab National Bank	At the Bank’s discretion
State Bank of India	7.65% p.a. onwards
Syndicate Bank	At the Bank’s discretion
UCO Bank	8.85% p.a. onwards
Union Bank of India	At the Bank’s discretion
United Bank of India	10.25% to 16.25% p.a.

Some of the popular NBFCs offering MSME business loans by the Government are listed here.

• Lendingkart
• Fullerton India
• Mahindra Finance
• Muthoot Fincorp

3) SIDBI Business Loan by Government

SIDBI, or the Small Industries Development Bank of India, is one of the oldest institutions offering government-backed business loans. It primarily supports MSMEs (Micro, Small, and Medium Enterprises) in need of financial assistance.

SIDBI provides direct loans to businesses and also offers indirect loan schemes through NBFCs and Small Finance Banks (SFBs).

Key features include:

• Loan amounts ranging from ₹10 lakhs to ₹25 crores
• Loan tenure up to 10 years
• No collateral is required for loans up to ₹1 crore

This makes SIDBI an essential resource for growing businesses.

4) National Small Industries Corporation (NSIC) Subsidy

The Government of India runs the NSIC to aid in developing MSMEs. The main goal of the NSIC is to support the MSMEs in technology, market, finance, etc. NSIC Subsidy helps MSMEs to improve their production and marketing quality. They provide business loans by the Government under different schemes.

Funds are provided under two different schemes:

• Raw Material Assistance Scheme: Used by the business to purchase ingenious or import raw materials with credit support for 180 days.
• Marketing Assistance: Used to market their business offerings with a competitive advantage.

1. Eligibility Criteria for NSIC Registration

Only enterprises with MSME certificates which have completed one year of operations are eligible. You can register via the single-point registration scheme for businesses that still need to complete one year.

2. Benefits of NSIC Registration

All the MSMEs can register for the NSIC with a one-time registration fee payment. Some of the benefits of registering under NSIC are listed here.

• Continue operations through loans under different schemes
• Helps in the documentation process
• Avail capital loans at the best interest rates
• Digital and technical support for skill development
• Boosts domestic exports
• Improve your scalability and suitability

5) Credit Guarantee Fund Trust For MSE (CGTMSE)

The GOI established the CGTMSE to offer credit guarantees to financial institutions that offer loans up to INR 2 crore. A 75% to 85% guarantee coverage is offered to business loans by the Government throughout India.

Some leading institutions offering business loans under this scheme are mentioned here:

• Scheduled Commercial Banks
• RRBs
• Small Financial Banks
• NBFCs
• SIDBI
• NSIC
• North Eastern Development Finance Corporation Ltd.

1. Eligibility Criteria

All new or existing SMEs are eligible for loans under this scheme. However, educational institutions, Self-help groups, agricultural activities, etc., are not eligible.

2. Benefits of the CGTMSE Scheme

• Coverage up to INR 2 crores
• The guarantee Fee is very small
• Concessions in fee for SC/STs
• The guarantee is fee further reduced by 10% and 85% coverage for women

6) Credit-Linked Capital Subsidy Scheme (CLCSS)

The Credit-Linked Capital Subsidy Scheme (CLCSS) is a government-backed loan designed to help businesses fund technological upgrades across various sectors, including marketing, supply chain, and manufacturing.

Eligible entities include:

• Partnership firms
• Private or public limited companies
• Sole proprietorships
• Cooperative companies

A key benefit of the CLCSS is an upfront 15% capital subsidy, making it a preferred choice for businesses seeking financial assistance for technological advancements.

7) Stand Up India

The GOI has initiated the Stand Up India scheme under the Small Industries Development Bank of India (SIDBI). The main purpose of the scheme is to empower businesses run by women and people belonging to SC and ST categories. They do so by offering a business loan by Government Scheme

Every bank branch must provide at least one loan to an SC/ST or women entrepreneur under this scheme. The candidate is eligible for a loan of INR 10 Lakh to INR 1 crore.

Features of Stand Up India Scheme

• The Interest Rate is Bank’s Base Rate + (MCLR) + 3% + Tenor Premium
• Tenure of up to seven years, including 18 months moratorium period
• Can cover up to 85% of the project cost
• Secured by the Credit Guarantee Fund Scheme for Stand Up India Loans (CGFSIL)
• Agriculture allied industries are also eligible

Some popular Banks offering a business loan by the government of India under the Stand Up India scheme are listed here:

• ICICI Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank
• Jammu and Kashmir Bank Ltd
• Punjab and Sind Bank
• PNB Bank
• State Bank of India
• Union Bank of India
• UCO Bank, etc.

8) Public Sector Bank (PSB) Business Loan By Government Scheme

The Government of India launched a dedicated online portal for MSMEs to apply for loans from banks easily. These are for business loans by the Government. The online portal allows applicants to get their loan applications approved in 59 minutes.

You can get loans from public/private banks, financial institutions, and NBFCs. A loan amount of INR 10 Lakh to INR 5 crore can be availed through this scheme. The partnering banks who have tied up with the portal can view your application and approve it immediately.

1. Eligibility Criteria

Any existing MSME business with a login ID for the PSG online portal can apply for PSB loans. You are eligible if you possess the following:

• GST and IT-compliant
• Last 6 months’ bank statement
• Know your eligibility from psbloanin59minutes.com on the following factors:
  • Revenue
  • Repayment capacity
  • Existing credit facilities
  • Other factors set by the lending institution
• You can choose from a list of lending institutions tied up with the portal.

2. Features of PSG Loans

• Easily apply for loans with minimum documentation
• Apply online and get it approved in 59 minutes and sanctioned in 7 to 12 days
• The analysis is done by the portal from various sources like GST, IT, etc.
• You can apply for term loans, working capital loans, MSME loans, and Mudra loans
• Interest rates starting from 8.59% p.a. onwards
• Tenure from 1 to 15 years
• Processing fee of 0.1% to 6% of the sanctioned loan amount

Documentation Required for Business Loan By Government Scheme

You have to produce certain documents to avail yourself startup loan for Indian businesses by the Indian Government. Here is the list of documents required:

• Application forms for the particular loan, duly filled with two passport-size photographs
• Applicant’s KYC document
• PAN card, Passport, Aadhar card, Driving license, voter ID card, and Utility bills
• Last 6 months’ bank statement
• Copy of the business incorporation
• Other documents required by the lending institution

Steps to Apply for Business Loan by The Government

Applying for a loan for a new business with the Government is very crucial since every piece of information will be cross-verified by the lending institution. You should follow the below-mentioned steps to apply for business loans.

• Choose the type of loan and the lending institution
• Check your credit score
• Fill in the Loan application form
• Prepare a Business Plan or Project Report
• Prepare all the Documents Required
• Analyze the Terms of the Loan

Final Words

The loan requirement of each business is unique. It is up to the entrepreneur to decide which small business loan by Government scheme is the best option. MSMEs are the engines that drive the economic growth of India. The GOI has taken visionary steps to ensure financial support to the MSMEs. Avail of these loans to set up your new firm or grow your existing business.

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