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Government Loan For Business Startup In India Research Team | Posted On Monday, June 18,2018, 06:38 PM

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Government Loan For Business Startup In India



India has the third largest startup base in the world (2016 report by NASSCOM), behind the US and the UK. This is evident by the fact that startups are thriving in our country. Ideas, passion and dedication alone cannot keep entrepreneurs going; they also require money which is generally given by VCs (Venture Capitalists) and Angel Investors.

With the number of startups rising by the day, the Government of India is doing its part to promote and support them. The government is striving to make credit easily available to startups and SMEs.

India is home to a large number of startup companies. The number of small units and cottage industries are on the rise. However, these startups and micro industries need funds to grow and manage the business and to thrive in the market belonging to global giants. As these units do not have any access to raise funds from the market, the government has taken an initiative to provide finances and promote these small scale industries.

If you are an entrepreneur who is very passionate about your business, you must definitely make a note of these business loans available to startups which have no collateral.

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Government Loan For Business Startups In India

1. The Credit Guarantee Scheme (CGS)

The credit guarantee scheme for micro and small enterprises was launched by the government of India, to make available collateral free credit to the micro and small enterprises sector. Both the new and the existing enterprises are covered under this scheme. This scheme helps micro enterprises and first generation entrepreneurs, avail small business loans at a reasonable interest rates. The amount of loan given to any applicant, depends on the individual’s eligibility and feasibility of the business. The maximum limit however is Rs 100 lakhs. The scheme also caters to strengthen and rehabilitate existing sick units.

With SIDBI (Small Industries Development Bank of India) as its partner, the Government of India is running this scheme (CGS), which gives unsecured loans to Micro and Small Enterprises. A maximum of Rs 100 Lakhs can be borrowed in the form of Term Loans or Working Capital Loans.

Both new and existing Micro and Small Enterprises engaged in manufacturing or service activities except in Educational Institutions, Agriculture, Self Help Groups (SHGs) and Training Institutions can avail these loans.

SEE ALSO: 10 LinkedIn Hacks for SMEs to Grow Their Businesses

2. MUDRA Loan Scheme

The purpose of the MUDRA (Micro Units Development and Refinance Agency Ltd) scheme, is to provide adequate funds to the micro units and the non corporate small business sector. The government has identified the lack of substantial funds required for the growth of the small and medium scale business in the country. The scheme has been designed keeping in mind the stage of growth and funding requirements of the beneficiary micro units and so is categorized under three stages. They are:

Banks facilitate loans under the MUDRA scheme as per customer requirements. The loans under this scheme are collateral free loans.

Micro Units Development and Refinance Agency Ltd. also known as MUDRA, is an agency launched by the Government of India. It funds non-corporate small business sectors in the country. The loans under MUDRA are granted for non-farm income-generating activities.

You can avail the following loans under MUDRA:

•    Shishu: These are loans up to Rs 50,000 with no collateral, @1% rate of interest/month, repayable over a period of 5 years.

•    Kishor: These are loans above Rs 50,000 and up to Rs 5 Lakhs.

•    Tarun:  These are loans above Rs 5 Lakhs and up to Rs 10 Lakhs.

These loans are designed based on the stage of business and funding needs of the beneficiary.

SEE ALSO: How Pradhan Mantri Mudra Yojana Helps Women?

3. Stand Up India Scheme

Stand-Up India Scheme Facilitates bank loans between Rs 10 Lakhs and 1 Crore, to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower for setting up a greenfield enterprise. This enterprise may be in manufacturing, services or the trading sector. The loans are granted to at least one woman borrower per bank branch. The scheme aims at promoting woman entrepreneurship among the scheduled castes and scheduled tribes.

Stand Up India is a special government scheme which aims to financially empower SC/ST and women entrepreneurs of the country. It also aims to get rid of License Raj and set up Greenfield enterprises. An amount ranging from Rs 10 Lakhs to Rs 1 Crore can be borrowed to start a manufacturing, trading or service unit. The loan tenure is 7 years. These loans are to be granted to at least one SC or ST and at least one woman borrower per bank branch.

4. Bank Credit Facilitation Scheme

This scheme was started by National Small Industries Corporation (NSIC), to fund MSMEs registered in India. NSIC has partnered with various nationalized and private sector banks and arranges credit support from banks at no cost to the MSMEs. The credit repayment tenure depends on the income generated. It varies from 5-7 years and can go up to 11 years in exceptional cases.

5. Coir Udyami Yojana

Headed by the Coir Board, this scheme aims to set up coir units across India. It funds project costs up to Rs 10 Lakh and one cycle of working capital. The total funds lent should not exceed 25% of the project cost. The capital expenditure is financed through a term loan and working capital in cash credit (short term cash loan). The rate of interest will be at par with the base rate. Repayment is to be made within 7 years.

6. Market Development Assistance Scheme for MSMEs:

This is a scheme that facilitates and helps the micro, small and medium enterprises gain exposure by participating in international exhibitions and trade fairs under the MSME India kiosk. The scheme is aimed at displaying the potential as well as strengthening the small and medium manufacturing units. 

7. National Bank for Agriculture and Rural Development (NABARD):

NABARD is a development bank that aims to provide and regulate credit and other facilities that helps to promote and develop agriculture, cottage and small industries, handicrafts and village industries. NABARD is entrusted with providing refinance to lending institutions in rural areas. It acts as a facilitator for rural prosperity promoting institutional development by evaluating, monitoring and inspecting the client banks.

How to apply for government loan?

The borrowers are required to carry out the necessary paperwork and submit the necessary documents to avail these loans. As these schemes are backed by the government, some of the loans are collateral free. Listed below are a few things to check before applying for the loan:

  1. Personal background: details of your background are checked. Crimes committed can disqualify the applicant or delay the process of sanctioning the loan
  2. Resume or business background: details of the business and the applicants experience in growing the business will be asked for.
  3. Business plan: the applicant needs to write a well thought business plan in the loan application.
  4. Personal and business tax returns: applicant must submit personal and business tax returns for the past 3 years.
  5. Financial statement:  applicant must submit the profit and loss statements, bank statements, balance sheets, and cash flow forecasts.
  6. Legal documents: applicant must provide proof that the business is run legally.
  7. Collateral (if required): Collateral will strengthen your profile and may help you get a bigger amount of loan.

Startup India registration:

To apply for startup India loans follow the below steps:

  1. Log on to startup India portal
  2. Enter your legal entity
  3. Enter your business registration number
  4. Enter the registration date
  5. Enter your PAN number
  6. Enter the address, pin code and state
  7. Enter details of authorized representatives
  8. Enter the details of partners
  9. Upload the required document by self attestation
  10. File the registration certificate of the company

See Also: how to apply pan card duplicate?

Startup business loan eligibility:

Startup India Scheme is an initiative of the Indian government, the primary objective of which is the promotion of startups, generation of employment, and wealth creation. The eligibility criteria of startup India are as follows:

  1.  It should be a new firm or not older than 5 years. The total turnover of the firm should not exceed Rs 25 crores.
  2. The company must be a private limited company or a limited liability partnership (LLPs).
  3. To get approval from DIPP, the firm should be funded by an Incubation fund, Angel Fund or Private Equity Fund.
  4. The firm should have obtained a patron guarantee from the Indian patent and trademark office.
  5. The firm must have a letter by incubation.
  6. The firm must provide innovative scheme and products
  7. The firms should have obtained the approval from the Department of Industrial Policy and Promotion (DIPP).
  8. Angel fund, Incubation fund, Accelerators, Private Equity Fund, Angel network must be registered with SEBI.

Startup business loan interest rate:

The rates of interest and tenure of repayment vary across banks. However, the interest rate ranges from 10.99% to 21% a year. A processing fee is also charged, on the amount borrowed. The tenure of repayment of the loan is up to 5 years.

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