The government business loans were ushered in to give funding support to micro, small and medium enterprises (MSMEs) and other important entities. There are a number of such schemes and the entrepreneurs have to choose which one suits them through the various online portals.
Types of government loan schemes
The government schemes are there to help the entrepreneurs to finance their businesses. These schemes are made to fulfill the needs of the enterprises and they can be categorized into the following types of business loans:-
1.Working Capital Loan-It is the type of capital that businesses need to conduct and manage the daily activities and is further grouped into two classes, namely secured and unsecured. These activities are ‘business expenses like utility bills, debt management, inventory management, operating costs, worker’s salaries, etc. A working capital takes care of the operating costs and many other loan schemes take care of this need.
2.Corporate Term Loan–Corporate term loans are taken for the purpose of business expansion. So it is considered to be one of the main categories that start-ups should think about. A large amount of money is generally involved in these types of termed loans and the payment of it is expected to be done over a longer period of time. This type of term loan has negotiable rates of interest.
3.Term Loan– The term loan is required to be repaid in a definite tenure by the lender. The term loans help the businessmen to purchase plant and machinery, raw material, property, or fixed assets and for paying salary and hiring new staff. It is a type of funding given by banks and NBFCs to individual entrepreneurs, business owners, MSMEs or large enterprises to help them meet their business or working capital needs.
There are more than 10 popular business startup loan schemes that the government gives to upcoming entrepreneurs. Some of them are:-
The government has set up this scheme to give finance to non-corporate, non-farm small/micro-enterprises. Mudra loans can be got from private and public sector banks, commercial banks, regional rural banks(RRBs), small finance, and corporate banks. The applicants can approach any of the lending institutions or apply online via the official website of MUDRA.
It is categorized under 3 loan schemes namely, Shishu, Kishor, and Tarun.
No collateral or security is required.
The processing charges are nil.
No minimum loan amount criteria are there.
The maximum loan amount is upto Rs. 10 lakhs.
The repayment tenure is upto 5 years.
These can be availed by enterprises engaged in manufacturing, trading, and service sectors only.
All the small or micro firms, all non-farm enterprises engaged in the income-generating activities can get MUDRA loans.
The availed loan amount can be used for term loans and overdraft facilities.
2.PSB Loans in 59 minutes
This loan segment was started on Nov 5, 2018, by Prime Minister Narendra Modi to help give loans of upto Rs. 5 crores in just 59 minutes. The government launched this scheme to give financial help to micro, small and medium enterprises(MSMEs) all over India. Some of it’s features are—
1.Fast access to financial help-These loan processes take upto 7-10 working days to complete. But the loan approval process takes just 59 minutes.
2.Loan amount-The loan amount given under this loan is between Rs.1 lakh and a maximum of upto Rs.5 crore.
3.Rate of the interest-The rate of interest given under this scheme is 8.5% onwards.
4.Quick disbursal-When the loan gets approved in an hour, one can expect the money to reach the bank in 7-8 working days.
3.National Small Industries Corporation(NSIC)Subsidy
The government helps small businesses under this scheme focusing on two financial benefits, marketing assistance, and raw material assistance. The benefits of this scheme are-
Cost-free tenders-Under the marketing assistance program the Small Scale Industries(SSIs) will have access to the tenders without any costs.
No requirement of security deposit–The SSIs is relieved from paying a security deposit for getting finances.
Land and building financing-For the small-scale industries with a project cost not going beyond Rs.25 lakhs the scheme gives a financial facility for the land and building department.
The Credit Guarantee Funds Trust for Micro and Small Enterprises(CGTMSE)is another government initiative that gives funding to MSMEs via financial institutions like banks and NBFCs. In this scheme entrepreneurs and startup, enterprises gain a good amount of benefits. The loan given under the CGTMSE scheme is collateral-free.
Under this type of funding the equipment that is bought when starting a business is kept as collateral with the bank thus helping the lender to charge a low rate of interest with higher risk. The borrower has to repay the loan amount used to buy the equipment as revenue generated from the business. The main advantage of equipment financing loans is that the depreciation of the equipment can be used by the customer as a tax benefit.
6.Business Instalment Loan
It is given by many of the leading banks like Standard Chartered and ICICI Bank. This lets the borrower get immediate cash and expand his needs. It broadly falls in the category of personal loans and it is an unsecured loan. But banks give secured versions of this loan at lower interest rates.
7.Growth Capital and Equity Assistance Scheme by SIDBI
Entrepreneurs can now get this type of loan for their start ups from the banks. Many banks and financial institutions give loan schemes that are designed specifically to fund start ups and their special needs. Different banks give different names for these Start up Business Loans. For eg, SIDBI gives ‘Growth Capital and Equity Assistance’ schemes that can be used for purposes like business expansion, buying machinery, buying raw materials, marketing, brand building, creation of distribution network, R&D, software purchases. In the same way, there are many other banks that give funding for start ups.