CA, CS, CMA, Advocates are available for Free Consultation!!!

   +91 85400-99000   A98, Nanhey Park, Uttam Nagar, New Delhi, India

Small Business Finance

Small businesses are the backbone of the Indian economy, contributing to 40% of the total GDP. However, lack of access to formal credit has been a significant challenge to their growth and development. To bridge this gap, the Indian government has launched several loan schemes, aimed at providing financial assistance to small businesses. In this blog post, we will discuss some of the top government loan schemes for small businesses in India, including their features and eligibility criteria. So, if you are an entrepreneur looking for financial assistance, read on to find out how these schemes can benefit you.

1. Introduction to Small Business Finance in India

Small businesses are the backbone of any economy and India is no exception. In recent years, the Indian government has taken numerous steps to promote small business growth by providing access to capital. This has led to the emergence of a range of loan schemes tailored to meet the specific needs of small businesses.

According to the Entrepreneur’s Guide to Small Business Finance on Shopify India, separating personal and business finances is the first step towards the financial well-being of a small business. This will not only simplify accounting processes but also protect personal property and assets. Incorporation is another option to ensure the protection of personal assets from business liability. However, incorporating should be done at the right stage in the business lifecycle to avoid losing tax benefits.

One of the major challenges faced by small businesses in India is access to capital. While banks are hesitant to provide high-risk loans to small businesses, the government has stepped in with a range of loan programs. The MSME Business Loans in 59 Minutes program allows small businesses to obtain a loan up to Rs. 5 crore within 59 minutes of application. The MUDRA Loan scheme provides credit for micro-businesses and startups with no collateral required. The Credit Guarantee Fund Scheme for MSMEs serves as a credit enhancement scheme that covers a portion of the losses incurred by financial institutions in case of borrower default.

To utilize small business loans effectively, entrepreneurs need to have a clear understanding of their business’s financial needs. It’s important to create a budget, keep track of expenses, and develop a financial statement that is easy to understand. Obtaining competent legal and financial counsel is also crucial for small business success.

In conclusion, small businesses in India have access to a range of loan programs, and proper financial management is key to their success. As the saying goes, “Give a man a fish and he’ll eat for a day. Teach a man to fish and you’ll feed him for a lifetime.” Similarly, understanding small business finance is crucial for entrepreneurs to make informed decisions and maximize their chances of success. [1][2]

2. Top 5 Government Loan Schemes for Small Businesses

The Indian government has introduced numerous schemes in the form of loans for Micro, Small and Medium Enterprises (MSMEs) to aid their growth and encourage financial stability within the economy. Specifically, the government provides loans that cater to the business needs of small entrepreneurs.

One of the most popular loan schemes by the government is the MSME Business Loans in 59 Minutes that provides loans up to Rs. 1 crore and its processing time is just 8-12 days. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is another significant scheme that provides collateral-free loans up to 10 lakhs. It sanctions loans to all MSMEs based on their credit standing through the registered lending agencies.

Apart from these, the government also has schemes like MUDRA Loans for Micro-Businesses, Stand-Up India Scheme for SC/ST and Women, and Credit-Linked Capital Subsidy Scheme that provides loans to small businesses based on their needs. Stand-Up India Scheme offers loans from Rs. 10 lakhs to Rs. 1 crore to those businesses that are run by Scheduled Castes/Scheduled Tribes or women entrepreneurs. Credit-Linked Capital Subsidy Scheme is tailor-made for small businesses looking for technological upgrades with an up-front capital subsidy of around 15%.

These loans have helped businesses in the MSME sector flourish in India. By opting for these loans, entrepreneurs can fulfill their requirement for funds while enjoying low-interest rates and flexible repayment options, making it easier for businesses to scale and expand. As a result, these schemes have become highly popular among small businesses in India. [3][4]

3. MSME Business Loans in 59 Minutes

In, small businesses often struggle to secure financing due to strict lending policies and heavy paperwork. However, the introduction of the MSME Business Loans in 59 Minutes scheme has changed the landscape of small business financing. This scheme enables self-employed professionals and MSMEs to apply for business loans online at an interest rate of 8.50% p.a. onwards. Under this scheme, individuals and enterprises can get loan approval for amounts ranging from Rs. 10 Lakh to Rs. 5 Crore in less than 59 minutes from Public and Private Sector Banks (PSBs) and NBFCs.

The eligibility criteria for this loan scheme are straightforward; the borrower must have a Login ID of psbloansin59minutes.com, be GST and IT compliant, and must have the last 6 months’ bank statement. As per the founder and MD of Capital Float, “The 59 Minutes initiative is a welcome step towards creating a smooth credit flow for MSMEs. The level of automation that we have seen in the lending process is industry-leading and will effectively reduce the transaction time and cost for all parties involved.”

The PSB loans in 59 minutes scheme is hand-holding at its best. It is one of the greatest policy initiatives that provide credit in a timely fashion to small businesses, MSME sector seekers, and private businessmen. The paperwork is simplified, and credit disbursement time has been significantly reduced to 59 minutes. Entrepreneurs can get in-principle approval for loans immediately, which serves as a good recommendation letter for future loan applications. This scheme is in tune with international best standards of banking services and increases the competitive nature of Indian products in both manufacturing and services sectors across the world. As per the Chairman of National Small Industries Corp, “It is a game-changer for GST-registered MSMEs. Facilities such as quick loan sanctions and cut in interest rates by 2% will go a long way in addressing problems still being faced by them.” [5][6]

4. MURDA Loans for Micro-Businesses

MUDRA Loans are an excellent financing option for micro-businesses in India. This scheme focuses on providing financial assistance to small-scale businesses and entrepreneurs who lack access to traditional financial institutions. Here are some key details about the MUDRA loan scheme:

– MUDRA stands for Micro Units Development and Refinancing Agency, and the scheme comes under the Pradhan Mantri Mudra Yojana banner.

– The loan amount ranges from Rs. 50,000 to Rs. 10 lakhs, and eligible businesses can apply for the loans through PSBs, NBFCs, and other financing institutions.

– The loan schemes offer instant access to finance without any collateral.

– The interest rates on MUDRA loans are competitive and well within the capabilities of small-scale businesses.

– Three variations of the MUDRA schemes offer loan amounts from as low as Rs. 50,000 to up to Rs. 10 lakhs.

– Repayment tenures range from 12 months to 5 years, allowing businesses to choose from various repayment tenures as per their expediency.

The MUDRA loan scheme is designed to aid the MSME sector and promote the growth and development of micro-businesses and startups. As Prime Minister Narendra Modi said, “The MUDRA Yojana will provide a huge boost to micro and small entrepreneurs and will go a long way in curbing unemployment and poverty.” The MUDRA loan scheme is an example of how the government is supporting small businesses and recognizes their contribution to the economy. [7][8]

5. Stand-Up India Scheme for SC/ST and Women

The Stand-Up India Scheme is a government initiative launched in 2016 to promote entrepreneurship among the SC/ST and women communities in India. The loan scheme is designed to provide financial assistance to eligible entrepreneurs looking to set up greenfield projects in the services, manufacturing, or trade sectors. According to a report by the Department of Financial Services, the scheme has benefited over 70,000 borrowers as of June 2019.

Under the Stand-Up India Scheme, loans can be availed by SC/ST and women entrepreneurs above 18 years of age for greenfield projects. The loan amount can range from Rs 10 lakh to Rs 1 crore and has a maximum repayment period of 7 years, including an 18-month moratorium period. The scheme also provides a composite loan, which comprises term loan and working capital, to make it easier for entrepreneurs to avail financial assistance.

One of the key features of the Stand-Up India Scheme is that the loans can be secured by collateral security or guarantee of Credit Guarantee Fund Scheme for Stand-Up India Loans. This makes it easier for entrepreneurs to get loans even if they do not have sufficient assets to secure the loan. Also, Rupay Debit cards are provided for the convenience of the borrower.

To be eligible for the scheme, the entrepreneur must be at least 18 years of age and a woman or a member of the SC/ST community. Additionally, the project must be a greenfield project in the manufacturing, services or trading sector. The borrower should not have defaulted on any bank or financial institute in the past.

Overall, the Stand-Up India Scheme is a great initiative by the government to promote entrepreneurship among underprivileged communities. It aims to provide financial assistance to eligible entrepreneurs and help them set up greenfield projects, thereby contributing to India’s economic growth and development. [9][10]

CA, CS, CMA, Advocates and IT experts, just a call away…