Loans provided by the Indian government to promote Startups

India is a rapidly developing country having the third largest startup base after the USA and UK in the world (as per 2016). Startup business provides self-employment and wealth creation, which in turn helps in the economic growth of the country. Businesses need finance to fight against the big fish in the market. To solve the problem of capital, the Indian government has introduced several schemes to support and promote SMEs and startups. The schemes include:

1. CGS (Credit Guarantee Scheme)

The CGC Scheme was introduced by the Indian government to help the small and micro-enterprises. The Indian government is running the CGS scheme with SIDBI (Small Industries Development Bank of India) as its partner. The maximum loan limit provided under this scheme is rupees 100 lakhs, depending on the feasibility and eligibility of the business. The loan under CGS can be availed in the form of Working Capital Loans or Term Loans. Any small or micro-enterprise engaged in service or manufacturing activities can avail this loan. Those running Educational Institutions, Training Institutions, Self Help Groups (SHGs), and Agriculture are not eligible.

Key benefits:

●     Availability of guarantee free loan

●     Covers both existing and new enterprises

●     Loans are available at meagre interest rates

●     CGS helps strengthen and restore the weaker existing enterprises

2. MURDA (Micro Units Development and Refinance Agency Ltd) Loan Scheme

As the small and medium scale businesses are facing a lack of substantial funds to grow their business, the government launched the MUDRA scheme. Under this scheme, the government provides loans to micro-units, non-farm and non-corporate businesses. Loan under this scheme is provided under the funding requirements and stage of business of the beneficiary. MUDRA scheme is grouped under 3 stages:

Shishu – Loan up to rupees 50000 without guarantee and @1% interest. Repayable duration over 5 years

Kishor – Loan above rupees 50,000 up to 5 lakh

Tarun – Loan above rupees 5 lakh up to rupees 10 lakh

Key benefits:

●     Collateral free

●     Loan offered as per customer needs

●     Low-interest rates

3. Stand Up India Scheme

The Indian government introduced this scheme to provide loans to women entrepreneurs from SC (Schedule Caste) or ST (Schedule Tribe). The loan amount of rupees 10 lakh to 1 crore can be borrowed to start a greenfield business. It can be either in the trading, service or manufacturing sector depending on the choice of the beneficiary. This loan will be granted to a minimum of one ST or SC women beneficiary per branch of the bank.

Key benefits:

●     Promote SC and ST women entrepreneurship

●     7 years of tenure

●     Set up Greenfield enterprise

●     Getting rid of License Raj

4. Bank Credit Facilitation Scheme

This scheme was introduced by NSIC (National Small Industries Corporation) to provide funds to India’s MSME (Ministry of Micro, Small and Medium Enterprises) registered units. The NSIC along with several private and nationalized sector banks as its partners provides loans to the MSME sector. The loans will be provided at no cost and the repayment time of the credit depends on the generated income. The time varies from 5 to 7 years and can be extended to 11 years (for exceptional cases)

Key benefits:

●     Great tenure time

●     Support MSME sector

5. Coir Udyami Yojana

This scheme is headed by the Coir Board and aims to provide loans to the Coir units to help them set their business in India. The load provided to these units should not exceed above 25% of the total project cost. The working capital will be given in cash whereas the capital expense is provided via a term loan. Under this scheme, the interest rate will be equal to the base rate. The credit must be repaid by the beneficiary within 7 years under this scheme.

Key benefits:

●     Empower coir units in India

●     Short repayment term

6. Market Development Assistance Scheme

Market Development Assistance Scheme facilitates and helps all the medium, small and micro-scale business (MSME). This scheme allows the MSME sector to provide exposure to their business by taking part in the international trade fairs and exhibitions. The participation is held under the MSME India kiosk. With this scheme, the medium, small and micro-scale manufacturing units get to exhibit their potential and set up a strong business.  

Key benefits:

●     Promote the MSME’s

●     Strengthen MSME’s sector in India

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

NABARD is nothing but a development bank that offers loans and other required facilities to promote the development of cottage and agricultural industries. Also, the ones running small handicrafts, village industries, and other small industries can avail this loan from the NABARD bank. NABARD also provides refinance to the lending enterprises from the villages (rural areas). NABARD is a provider that promotes institutional development by monitoring, inspecting and evaluating the client banks. 

Key benefits:

●     Rural prosperity

●     Promote agriculture

How to apply for the above loans? 

All the above-mentioned schemes are backed by our government, wherein, a few are provided without guarantee. The borrower should fill all the necessary paperwork and submit the documents mentioned below to avail the loan.

1. Business plan – The borrower will have to provide a written business model/plan for applying for the loan.
2. Personal background – Complete background checked to ensure no crime was committed by the borrower. If so, the application can be either disqualified or the process of sanctioning a loan will be delayed.
3. Business background or resume – The bank asks business details and the experience of the applicant in the growth of the business.
4. Legal documents – The borrowed should provide proof that he/she will run the business legally.
5. Financial statement – All the profit statements, loss statements, balance sheets, cash flow forecasts, and bank statements should be submitted.
6. Business and personal tax returns - Business and personal tax returns for the past 3 years should be submitted.
7. Guarantee (if any) – This simply helps you get a bigger loan amount by strengthening your profile.

What is the eligibility for availing the startup business loan? 

●     The enterprise should be new or less than 5 years old

●   Turnover must be less than rupees 25 crores

●   The company should be private limited or LLPs (limited liability partnership)

●   DDIP (Department of Industrial Policy and Promotion) approval

●   The firm must be funded by Private Equity Fund, Angel Fund,  or Incubation Fund to get DIPP approval

●    Patron guarantee from trademark office and Indian patent is a must

●    Incubation letter

●    Innovative products and scheme

●    Angel Fund, Angel network, Incubation Fund, Accelerators, Private Equity Fund should be SEBI registered

Startups in our country are growing day by day, but only passion, dedication and ideas are not enough, finance is also a necessity. If you are an ambitious entrepreneur who is willing to start a business, then the above-mentioned schemes can help you achieve your goal. You can avail loans at minimum interest rates and enjoy a successful business.

Penned By: Anuja Patil