Business Loans for SMEs & MSMEs in India

SMEs & MSMEs are “backbones of Indian Economy”, “Vehicles of Growth for India” and much more. There are 40 Million Plus SMEs & MSMEs in India employing more than 40% of Indian Population and contributing around 37% to GDP according to some estimates. The Government is focusing on growth of SMEs and paving a way for their growth & expansion through various programs. In every Union Budget, SMEs, their taxation and easy availability of business loans for them is one of the most talked about points giving hopes to SME owners.

But when It comes to arranging Business loans for small companies, small manufacturers and Industries, the ground realities seem to be different and harsh. The Banks are not willing to give loans to businesses as that involves too much risk. Even though the government has directed the banks to give at least a fixed share of all loans to MSMEs, they find ways not to do so. For banks, giving away personal loans, car loans, education loans, home loans etc. is far more secure than giving loans to businesses and providing them with working capitals.

However in recent years, the situations seems to be changing towards good. Now banks are venturing into the space due to push from the govt. Apart from banks, there are multiple startups and NBFCs who are trying to arrange for loans for SMEs and providing them with capital for their procurement and expansion needs. And most importantly, there are multiple schemes from the government which claim to provide loans to SMEs & SMEs. Here we make a list of these schemes & programs.

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

It was launched by Indian Govt. to provide the SMEs with collateral free loans. Both the existing and the new enterprises are eligible for the scheme. The Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the scheme. The scheme provides credit facilities in the form of term loans and working capital facility of up to Rs. 100 lakh per borrowing unit. The amount is contributed by the Government and SIDBI in the ratio of 4:1, respectively. The scheme also offers rehabilitation assistance to sick units covered under the guarantee scheme. To know more about the scheme and how to apply, visit this govt. website.

Reach: As on May 31, 2016, cumulatively 24,31,490 proposals from micro and small enterprises have been approved for guarantee cover for aggregate credit of Rs.1,13,500.61 crore.

Credit Link Capital Subsidy Scheme for Technology Upgradation

SMEs need to upgrade technology and machinery to stay in competition. But procuring money for the same cannot be easy as it take big investment. For the same reason, Ministry of Small Scale Industries (SSI) runs a scheme for technology upgradations of Small Scale Industries. Known as the Credit Linked Capital Subsidy Scheme (CLCSS), it aims at facilitating technology upgradations by providing an upfront capital subsidy of 15% (limited to maximum Rs.15 lakhs) to SSI units for credit availed by them for the modernisation of their plant and machinery. All sole proprietorship, partnership firms, cooperative, private and public limited companies are eligible for this scheme. Find out more about it from this government website.

Reach: Since the inception of this scheme, more than 28,287 units have availed subsidy of Rs.1619.32 crore. (upto 2016)

Small Industries Development Bank of India (SIDBI)

This is probably the most popular scheme and was started in 1990. This loan has played an active role in the promotion and development of the small business industry. It has special schemes like Single Window Scheme, Mahila Udyam Nidhi (MUN), Scheme for Food Processing Industries, Technology Development and Modernization Fund Scheme etc. To know more about the scheme visit this page

National Small Industries Corporation Limited (NSIC)

National Small Industries Corporation Limited (NSIC) came into effect in the year 1999 with an objective of encouraging the small scale industries in the country. The prime feature of NSIC is to import machines on hire-purchase terms. It lay emphasis on supplying and distributing both indigenous and imported raw material as well as on exporting the products of small business units. Besides, it also creates awareness of advancements occurring in the field of small scale industries. To know more about the scheme, visit this page.

National Bank for Agriculture and Rural Development (NABARD)

NABARD offers financial assistance to small scale industries cottage and village industry. Under the RIDF ( Rural Infrastructure Development Fund) scheme Rs. 51,283 crore have been sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges, health and education, soil conservation, water schemes etc.

Market Development Assistance Scheme for MSMEs

The Scheme offers funds for: 

1. Participation by manufacturing Small & Micro Enterprises in International Trade Fairs/ Exhibitions under MSME India stall.

2. Sector specific market studies by Industry Associations/ Export Promotion Councils/ Federation of Indian Export Organisation.

3. Initiating/ contesting anti-dumping cases by MSME Associations

Find more details on this page.

Technology and Quality Upgradation Support to MSMEs

This scheme funds the manufacturing MSME sector to upgrade technology, use energy efficient technologies and manufacturing processes in order to reduce production cost and emissions of harmful gases. The scheme also aims to improve the product quality of MSMEs to encourage them towards becoming globally competitive. For this, the Government of India provides financial support to the extent of 75% of the actual expenditure to help to manufacture MSMEs buy energy efficient technologies for production.

Mini Tools Room and Training Centre Scheme

To assist state governments set up Mini Tool Room and Training Centres, the Government of India provides financial assistance in the form of one-time grant-in-aid. The financial aid equals to 90% of the cost of machinery/ equipment (maximum to Rs. 9 crores) in case new Mini Tool Room has to be created and 75% of the cost (maximum to Rs. 7.50 crore) in case an existing room has to be upgraded. The main objective of this scheme is to develop more tool room facilities in order to provide technological support to the MSMEs and training facility in tool manufacturing and tool design to create a workforce of skilled workers, supervisors, engineers/designers, etc.

MUDRA Loan

Mudra stands for Micro Units Development and Refinance Agency Ltd. This organization has been established by Government of India for development and refinancing activities relating to micro units. Simply with the vision of Funding the Unfunded.

Small organizations, companies, startup entrepreneurs of micro units in India face lack of formal financial support in starting or growing stage of their small businesses. Visit the site here.