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.

Since the introduction of the MSME Act, 2006, and Startup India Initiative, Micro, Small, and Medium Enterprises (MSMEs) and startups have surged in India. However, accessing funding remains a challenge, especially at early business stages.

MSMEs and startups often face limited access to formal credit. To address this, the government offers various loan schemes, making it easier for businesses to secure funding.

These government-backed loans encourage MSMEs and startups, driving job creation and boosting economic growth. Consequently, many financial institutions provide attractive loans for these businesses at competitive interest rates.

Eligibility to Obtain Business Loans for Startups and MSMEs

Different eligibility criteria are prescribed for various business loan schemes for startups and MSMEs. However, the general eligibility criteria to obtain business loans are as follows:

• The applicant’s age should be more than 21 years, and the maximum age should not exceed 65 years.
• The applicant must be a citizen of India.
• The applicant should have a business plan.
• The MSMEs and startups should be formed as a sole proprietorship firm, partnership firm, company or a Limited Liability Partnership (LLP).
• The MSME and startup must have a good credit score.

Application for Government Business Loans for Startups and MSMEs

The application process for different business loan schemes varies from scheme to scheme. However, the general application process to obtain government business loan schemes are as follows:

• The applicants must visit the respective business loan scheme’s website or the financial institution’s website that provides loans to MSMEs and startups. 
• The applicant must click on the ‘Apply Loan’ option on the website’s homepage.
• The applicant must fill all the required fields, such as owner details, desired loan amount, annual gross sales or turnover, bank account details, years of current business, etc., and upload the required documents.
• After submitting all the details, the scheme’s or financial institution’s representative will contact the applicant to proceed with the loan formalities.
• Once the loan application is approved, the financial institution will disburse the approved loan amount within defined working days to the applicant’s bank account.

Documents Required for Business Loans

• KYC documents such as passport, Aadhar card, driving license, voter’s ID card, PAN card and utility bills.
• Self-drafted business plan.
• Last 12 months’ bank statement and the previous year’s ITR.
• Business incorporation certificate.
• Business address proof. 
• Any other document required by the lender.

Top Government Business Loans for Startups and MSMEs

The top government business loans schemes for startups and MSMEs are as follows:

Pradhan Mantri Mudra Yojana (PMMY)

The Pradhan Mantri Mudra Yojana (PMMY) or Mudra loans provide loans up to Rs.10 lakh to non-farm and non-corporate small and micro-enterprises. The following financial institutions offer Mudra loans under the PMMY: 

• Small Finance Banks. 
• Commercial Banks.
• Non-Banking Financial Company (NBFC). 
• Microfinance Institutions (MFIs).

The applicants can apply for Mudra loans by approaching any lending institutions mentioned above or the PSB (59 minutes portal). The Mudra loans provide collateral-free loans with a repayment tenure from one year to 5 years. Under the PMMY scheme, the Mudra loans are divided as per the developmental stages of business, which are:

• ‘Shishu’ provides loans up to Rs.50,000.
• ‘Kishor’ offers loans above Rs.50,000 up to Rs.5 lakhs. 
• ‘Tarun’ offers loans above Rs.5 lakhs up to Rs. 10 lakhs. 

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offers collateral-free loans to MSMEs and startups, with a credit facility of up to Rs.200 lakh. It provides a guarantee cover of 50%, 75%, 80%, or 85% based on the loan amount, protecting lenders in case of borrower default.

Loans under this scheme are provided by scheduled commercial banks (private, public, and foreign banks) and select regional rural banks approved by NABARD. Interest rates follow RBI guidelines.

MSME Business Loan for Startups in 59 Minutes

The government’s PSB Loans in 59 Minutes Portal offers Mudra and MSME loans, with applications processed in just one hour. Once approved, the loan is disbursed within 7-10 working days.

The portal offers in-principle loan approvals up to Rs.5 crores, available as working capital or term loans, with or without collateral. Interest rates start at 8%.

To apply, borrowers must be IT and GST compliant and provide KYC documents and six months of bank statements. The portal partners with multiple banks, allowing borrowers to choose their preferred lender for loan approval.

Credit-Linked Capital Subsidy Scheme (CLCSS)

The Credit Linked Capital Subsidy Scheme (CLCSS) offers a 15% subsidy on institutional credit up to Rs.1 crore for MSMEs and startups upgrading their technology. The maximum subsidy cap is Rs.15 lakh. Applicants can approach one of the 11 nodal agencies or banks associated with the scheme.

CLCSS aims to enhance the MSME sector by improving product quality, upgrading technology, reducing waste, enabling cloud computing, supporting design intervention, facilitating intellectual property, and nurturing innovative ideas.

Term Loan by Banks

Many banks and financial institutions offer term loans to MSMEs and startups, with fixed loan amounts and repayment tenures. Interest rates, loan periods, and amounts vary by lender. Repayments are typically made through Equated Monthly Installments (EMIs).

Term loans may have fixed or floating interest rates and can be short-term or long-term. They can be secured or unsecured and are available for various business purposes, such as: 

• Business expansion.
• Buy fixed assets.
• Meet working capital requirements.
• Paying-off rent and salaries.
• Hiring new staff, etc.

Working Capital Loan by Banks

Banks and financial institutions provide working capital loans to MSMEs and startups to meet short-term cash needs. These loans, typically for 6 months to 1 year, cannot be used for long-term investments or asset purchases. Interest rates range from 12% to 16%, based on the business's credit assessment.

The loan amount varies by bank, but small businesses can secure a minimum of Rs.50,000 at a fixed interest rate. Working capital loans can be used for various business purposes, such as:

• Debt payments.
• Buying inventory and raw materials.
• Paying employee wages.
• Managing overhead costs.
• Paying suppliers, etc.

Loan Schemes Offered by Banks for Startups and MSMEs

Financial institutions and banks provide various business loans schemes for MSMEs and startups, apart from working capital and term loans. These loans can be used for several business needs, such as:

• Purchase of inventory and equipment.
• Operating capital (working capital).
• Fund requirement for expansion, etc.

The loan schemes offered by various banks or financial institutions have different terms and conditions applicable and different interest rates. The applicant can find the details of the various business loan schemes provided by the banks for small businesses on the respective banks’ websites. Some of the banks which offer business loans to small businesses are: 

• State Bank of India.
• HDFC Bank.
• ICICI Bank.
• Axis Bank, etc.

Some of the financial institutions which offer business loans to small businesses are: 

• Non-Banking Financing Companies (NBFCs).
• Small Finance Banks (SFBs).
• Regional Rural Banks (RRBs). 
• Micro Finance Institutions.

SIDBI Loans

It offers various direct finance loan schemes such as: 

• SIDBI’s Term Loan to Enhance Production Of MSMEs (STEP) Scheme Guidelines.
• SIDBI and Google Partnership for Assistance to Micro Enterprises (SANGAM).
• SIDBI Assistance to Export Oriented MSMEs Under Ubharte Sitaare Programme.
• Assistance to Re-Energize Capital Investments by SMEs (ARISE).
• SIDBI Assistance to Facilitate Emergency Response Against Corona Virus-Plus (SAFE Plus).
• Top Up Loan For Immediate Purposes (TULIP).
• SIDBI-Loan For Purchase of Equipment For Enterprise’s Development Plus (SPEED Plus).
• SIDBI-Loan For Purchase of Equipment For Enterprise’s Development (SPEED).
• Working Capital (Cash Credit).

The SIDBI portal provides eligibility criteria and the features of the direct loans schemes on its portal. The applicant can choose the direct finance loan scheme after going through its features and apply for the selected loan scheme directly on the SIDBI portal. 

National Small Industries Corporation Scheme

The National Small Industries Corporation (NSIC), a government enterprise, supports MSMEs and startups by offering services in areas like market access, technology, finance, and more. The NSIC’s ‘Raw Material Assistance’ scheme provides financing for raw material procurement, with credit support for up to 180 days. This helps MSMEs take advantage of bulk purchases and cash discounts.

The NSIC also offers a ‘Bank Credit Facilitation’ scheme, helping MSMEs meet credit needs by facilitating access to loans from nationalized and private sector banks. Through MoUs with these banks, the NSIC assists with documentation and follow-up. Applicants can apply for these schemes via the NSIC website. 

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