All You Need to Know About Business Loan Subsidy

Business Loan Subsidy is a term that has found prominence in the past decade with the Government realising the importance of Micro Small and Medium Enterprises (MSMEs) in steering the Indian economy towards the path of success. A business loan subsidy scheme may include the waving off of interest or charging the lowest possible interest rates on loans up to a particular amount. The need for such assistance arises out of the inability of novice entities to raise and afford loans from the financial sector. Also, in times of distress like the current pandemic, it becomes crucial for the Government to bring industries back on track by providing monetary assistance with instruments like Business Loan Subsidies. Here is a look at some of the significant Business Loan Subsidy schemes of the Indian Government.

Pradhan Mantri Mudra Yojana (PMMY)

Realising Micro Business enterprises’ financial needs, GoI had set up Micro Units Development and Refinance Agency (MUDRA), for the MSME sector, as a subsidiary of the Small Industries Development Bank of India (SIDBI), in 2015 to disburse quick loans. Subsequently, the Government announced PMMY to give shape to its ambitions of ‘funding the unfunded’. Under the scheme, collateral-free loans of up to Rs.10 Lakh are provided to non-corporate and non-farm micro/small enterprises through institutions like Commercial Banks, Small Finance Banks, Rural Regional Banks (RRBs), Micro Finance Institutions, and Non-Banking Financial Institutions.

There are three categories to identify a business at different stages of its growth: Shishu (Loan up to Rs.50000), Kishore (Loans up to Rs. 500000) and, Tarun (Loans up to Rs. 1000000). While there is no processing fee for the first two categories, it is chargeable at 0.5% of the decided amount for the third one. The repayment period under it ranges from 3 to 5 years. The initiative has become one of the most popular ones in recent times and has been aiding MSMEs with the right intention from the very beginning. It saves time and shields small businesses from the lengthy paperwork by sanctioning loans in quick time.

SIDBI Make in India Loan For Enterprises (SMILE)

To take forward one of its landmark initiatives, Make in India, the Government of India initiated SMILE. This scheme aims to promote innovation and creativity in the MSME sector by improving the infrastructure, facilitating the investment climate, enhancing skill development, and protecting intellectual property rights.

To promote healthy participation of small businesses in the campaign, loans are provided at competitive interest rates with longer repayment periods. The emphasis is given to green enterprises entering the manufacturing and services sector along with existing businesses. Both Soft and Term loans are provided under SMILE, with a repayment period of up to 10 years that includes a 3-year moratorium period. The amount of assistance varies from Rs10. Lakh to Rs. 25 Lakh, depending on the needs of the enterprise. One of the conditions to benefit from the scheme is that the applying firm must be having an active existence of at least 3 years. SMILE offers a speedy disbursal of financial assistance with affordable interest rates to keep the liquidity alive in small entities.

MSME Business loans in 59 minutes

As the name suggests, the scheme offers a collateral-free loan approval within an hour of its application. The idea behind it is to reduce administrative hurdles for which Indian institutions are famous. The loan can be availed from any bank, and its amount can go up to Rs. 1 crore where the interest rate depends on the nature of business and credit rating. The only requirement to get the money into your account within 59 minutes of application is the online submission of the scanned copies of all the required documents. The scheme has come out as one of the most unique ones from the Indian Government and shows its will to improve the ease of doing business. Though the loan disbursal period is said to be 1 hour, in some cases it might take around 10-11 days to get the approvals done.

Stand Up India

It focuses explicitly on promoting Scheduled Castes, Scheduled Tribes, and women entrepreneurs in the business arena. Under it, loans starting from Rs. 10 Lakh to Rs.1 crore are provided to the above categories of people working in the trading, service, or the manufacturing sector. The scheme was launched to augment greenfield enterprises’ setting and bring the most backward of people into the mainstream. The loan provided comes bundled with the support of working capital and carries a subvented interest rate. For establishing non-individual enterprises, 51% of the stake must be held by either a women entrepreneur, an SC, or ST.

Stand Up India facilitates the availability of financial products to the entrepreneurs coming from a poor background. The scheme proposes a rate of interest which is the lowest at the bank of operation. There is also a provision of providing 25% margin money.

Bank Credit Facilitation Scheme

Under this scheme, the National Small Industries Corporation (NSIC) facilitates working capital and term loans at affordable rates to MSMEs that get the option to choose between Government and private banks. It helps such small business units in maintaining liquidity and fulfilling their financial needs. The NSIC provides various significant facilities like technological assistance, marketing, finance, among others, free of cost to the MSME sector to help them lay a resilient foundation to build on.

The scheme takes care of eligible firms’ fixed and working capital requirements and gives them access to finance for modernisation and up-gradation of their processes. The rate of interest provided is competitive and affordable, which reduces the fear factor among novice entrepreneurs. Moreover, there is a backing from NSIC on various aspects of running importance, which adds to the plus points.

Credit Guarantee Scheme for Micro and Small Enterprises (CGSMSE)

Credit Guarantee Scheme for Micro and Small Enterprises (CGSMSE): The scheme helps provide MSMEs, both existing and new, with collateral-free loans to fulfil their working capital requirements. It is a push towards making the availability of credit easy and within reach for the concerned enterprises. In association with SIDBI, India's Government has set up a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) that furthers the flow of finance to small businesses.

Credit Linked Capital Subsidy Scheme for Technology Upgradation

Credit Linked Capital Subsidy Scheme for Technology Upgradation: Under this, small businesses get the opportunity to finance their technological up-gradation processes. It comes under the aegis of the Ministry of Small Scale Industries and offers a capital subsidy of up to 15% for eligible entities. The maximum Subsidy that can be availed is capped at Rs. 15 Lakh and the types of businesses it covers range from Partnership firms, sole proprietorship, co-operative firms, etc. The scheme immensely helps enhance the operations related to manufacturing, supply chain, marketing, etc., by providing upfront subsidy to upgrade the technology, which is the most significant thing in the present times.

Finance is the foremost aspect for any budding firm, and the above mentioned Business Loan SUbsidy schemes are the best to take care of it. From setting up an Organisation to enhancing its operations, the need for liquidity is never on the lower side. Moving ahead, the requirement is only going to increase because of the dying demand in the economy. A good scheme is recognised by factors such as affordable interest rates, a convenient repayment period, and convenient access to immediate funds.

Also Read:

1) List Of Schemes Farmers Can Avail in India
2) How to Apply for a Mudra Loan?
3) What is a Mudra Loan? Features, Eligibility & More
4) 7 Different Types of Loans for Your Small Business
5) Which Are the Different Types of Loans in India?