MSME Loan Scheme 2025

Budget 2025 Updates:

• Revision of classification of MSMEs to include more businesses and companies under the purview of MSMEs.
• Micro-enterprises on the Udyam portal will get credit cards with a Rs. 5 lakh limit; 10 lakh cards will be issued in the first year.
• A new Rs. 10,000 crore Fund of Funds will be launched with an expanded scope.
• A scheme for 5 lakh women and SC/ST first-time entrepreneurs will offer term loans up to ₹2 crore over five years, along with online capacity building.

MSMEs require funding for growth, and the Government of India has launched several schemes to support them. As a major contributor to the economy, access to credit is crucial for MSME establishment and expansion. 

To meet this need, the government, banks, and financial institutions offer various loan schemes. Some of the most recognized MSME loan schemes of 2023, especially in response to COVID-19 disruptions, are highlighted below.

Budget 2025 Expectations on MSME Loan Scheme 2025

For Budget 2025, improving capital access for MSMEs is crucial, as only 16% receive timely financing, leaving a Rs. 20 trillion credit gap. Additionally, 86% of manufacturing units remain unregistered, limiting their access to financial support. To address this, public sector banks should ease co-lending criteria by including BBB-rated NBFCs, allowing more fintechs to participate. Simplifying GST by shifting liability to buyers and lowering rates for budding MSMEs could further boost growth. Women-led MSMEs, despite growing by 21.8 million in FY22, still face barriers like collateral mandates and regulatory challenges. Expanding the Credit Guarantee Scheme is essential to support their increasing contribution to India's economy.

The Pradhan Mantri Mudra Yojana (PMMY), launched by the Hon’ble Prime Minister on 8th April 2015, offers loans up to ₹10 lakh to non-corporate, non-farm small or micro-enterprises. These loans are classified as MUDRA (Micro Units Development and Refinance Agency Limited) loans.

MUDRA, a non-banking financial company (NBFC), supports MSME growth by refinancing banks, microfinance institutions (MFIs), and NBFCs for lending to micro-units. Loans are provided through Commercial Banks, Small Finance Banks, MFIs, and NBFCs, with the option to apply online via the UdyamiMitra portal.

PMMY offers three schemes: ‘Shishu’, ‘Kishore’, and ‘Tarun’, each reflecting the growth stage and funding needs of the beneficiary micro-units and serving as a reference for their next phase of development.

Nature of Assistance – ‘Shishu’ offers loans up to Rs.50,000. ‘Kishor’ provides loans above Rs.50,000 up to Rs.5 lakhs. ‘Tarun’ provides loans above Rs.5 lakhs up to Rs. 10 lakhs to micro-units.

Prime Minister’s Employment Generation Programme (PMEGP)

Eligibility – Any individual/s who is/are above 18 years of age is/are eligible. The individual/s should be at least VIII standard pass for the projects, in the manufacturing sector which cost above Rs.10 lakh and in the business or service sector which cost above Rs. 5 lakh. 

This scheme only considers new projects for sanction. Self Help Groups, institutions registered under the Societies Registration Act, 1860, production-based co-operative societies, and charitable trusts are eligible.

Units under PMRY, REGP, or any other government scheme, as well as those that have previously received government subsidies, are not eligible for this scheme.

Nature of Assistance – The maximum cost of the project or unit admissible in the manufacturing sector is Rs.25 lakhs and in the business or service sector is Rs.10 lakhs for assistance under this scheme.

The beneficiary’s rate of the subsidiary for the general category is 15% in urban areas and 25% in rural areas. The beneficiary’s rate of the subsidiary for the special category is 25% in urban areas and 35% in rural areas.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT MSE)

The Ministry of Micro, Small and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI) jointly established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement a credit guarantee scheme for MSMEs.

The Government of India and SIDBI contribute to the scheme's corpus, aiming to provide financial assistance to small and medium industries without requiring third-party guarantees or collateral. The guarantee coverage ranges from 85% for Micro Enterprises (up to ₹5 lakh), 75% for others, and 50% for retail activities.

Eligibility – Both existing and new enterprises are eligible under the scheme. The candidates meeting the eligibility criteria may approach banks or financial institutions and select Regional Rural Banks which are eligible for getting assistance under this scheme.

Nature of Assistance – The guarantee cover available under the scheme is to the extent of 50%/75%/ 80% or 85% of the sanctioned amount of the credit facility. For micro-enterprises up to 5 lakhs, the extent of guarantee cover is 85%.

The guarantee cover is 50% of the sanctioned credit amount for retail trade activities ranging from ₹10 lakh to ₹100 lakh per MSME borrower. In case of default, the trust settles up to 75% of the default amount for credit facilities extended by lending institutions, for loans up to ₹200 lakh.

Credit Linked Capital Subsidy Scheme (CLCSS)

The Credit Linked Capital Subsidy Scheme (CLCSS) provides a 15% subsidy on additional investments up to ₹1 crore for MSMEs upgrading to state-of-the-art or near state-of-the-art technology.

Eligible candidates can approach one of 12 nodal banks or agencies, including SIDBI, NABARD, SBI, BoB, PNB, BOI, SBBJ, TIIC, Andhra Bank, Corporation Bank, Canara Bank, and Indian Bank, to avail the subsidy.

Eligibility – Any MSME unit is eligible under this scheme. But the units replacing existing equipment or technology with the same equipment or technology will not qualify for a subsidy under this scheme. Similarly, the units upgrading with used machinery would not be eligible under this scheme.

Nature of Assistance – This scheme aims at facilitating technology upgradation by providing 15% upfront capital subsidy to MSMEs on institutional finance availed by them. This subsidy is provided to MSMEs for induction of well established and improved technologies in specified sub-sectors or products approved under the scheme.

This scheme provides an upfront subsidy of 15% on institutional credit up to Rs.1 crore (i.e. a subsidy cap of Rs.15 lakh) for identified sectors/subsectors/ technologies.

Equity Infusion for MSMEs through Fund of Funds

Eligibility – All MSMEs are eligible. MSMEs can apply through Investor Funds onboarded and registered with the proposed Fund of Funds.

Nature of Assistance – The Government of India will support VC or PE firms in investing in commercially viable MSMEs for meeting their growth requirements. The proposed fund of funds will encourage private sector investments in the MSME with leverage of Rs.50,000 crore.

Credit Guarantee Scheme for Subordinate Debt (CGSSD)

Credit Guarantee Scheme for Subordinate Debt (CGSSD) seeks to extend support to the promoters of the operational MSMEs which are stressed and have become NPA as on 30th April 2020. The promoters, in turn, will infuse this amount in the MSME unit as equity and thereby increase the liquidity and maintain the debt-equity ratio.

Subordinate debt will be of considerable help to sustain and revive the MSMEs which have become NPA or are on the brink to become NPA. The promoters of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs.75 lakh whichever is lower.

Eligibility – The operational MSMEs which are NPA or are stressed will be eligible. The promoters of MSME who meet the eligibility criteria can apply for this scheme. They can approach scheduled commercial banks to avail benefit under the scheme.

Nature of Assistance – The scheme provides 90% guarantee for the sub-debt, and the remaining 10% will be from the concerned promoters. The maximum tenure for repayment is ten years. There is a moratorium of 7 years on payment of the principal.

SIDBI Make In India Loan For Enterprises (SMILE)

The SIDBI Make In India Loan For Enterprises (SMILE) is intended to take forward the Government of India’s ‘Make in India’ campaign and help MSMEs take part in this campaign. This scheme provides a soft loan in the nature of quasi-equity. It also provides term loans on relatively soft terms to MSMEs to meet the required debt-equity ratio for their establishment. It also provides loans to the existing MSMEs to pursue opportunities for their growth.

Eligibility – New enterprises in the manufacturing and the services sector is covered under this scheme. The existing enterprises undertaking expansion for taking advantage of the new emerging opportunities are eligible under this scheme. This scheme will also cover the existing enterprises undertaking expansion for undertaking modernisation, technology upgradation or other projects for growing their business. Under this scheme, the emphasis is given to financing smaller enterprises within MSME.

Nature of Assistance – The minimum loan size is Rs.10 lakh for equipment and finance. The minimum loan size for others is Rs.25 lakh. The repayment period is up to 10 years, including moratorium of up to 36 months.

MSME Business Loan for Startups in 59 Minutes

The Government of India recently announced to offer MSME Business Loan for Startups in 59 Minutes. A new web portal was launched to provide loans to MSMEs in 59 Minutes. The processing of the loans for MSMEs on this online portal is fully automated. This portal will process the loans within one hour. After the loan is approved through this portal, the loan is disbursed to the applicant of the loan in the next seven or eight working days.

This scheme aims at automation and digitisation of various processes of business loans offered, which includes the term loans, working capital loans and mudra loans.

Eligibility – Any existing business or MSMEs which wants to apply for a business loan (term loan/ working capital loan) in-principle approval is eligible. The business should be IT compliant and must have a six months Bank Statement Facility. 

Both GST registered as well as not-registered businesses are eligible. If any business not registered with GST or has not filed ITR or does not have a bank statement applies for mudra loan, then the business can provide the related details by self-declaring the same.

The income or revenue, repayment capacity, existing credit facility and any other factors as set by lenders determine the eligibility criteria of the borrowers. The portal is integrated with CGTMSE to check eligibility of borrowers.

Nature of Assistance -The business loan in-principle approvals are provided from Rs.1 lakh to Rs.5 crores. The loans are provided with or without collateral. The rate of interest starts from 8.5% onwards. The mudra loan in-principle approvals are provided from Rs.10,000 to Rs.10 lakh.

MSME Loan Scheme by Banks

Banks and lending institutions offer term loans and working capital loans to MSMEs. Working capital loans help meet daily cash needs, while term loans are for capital expansion, capital expenditure, or purchasing fixed assets.

In addition to these, banks and financial institutions provide various loan schemes with different terms and conditions. Interest rates depend on factors like loan amount, repayment tenure, business type, creditworthiness, and repayment ability.

Many MSME loans are available without collateral. Major banks offering these loans include State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank, along with NBFCs, Small Finance Banks (SFBs), Regional Rural Banks (RRBs), and Microfinance Institutions.

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