Finance

New business loan schemes for SME’s

SMEs contribute around 40% to India’s GDP. In recognition of the growing contribution of SMEs, the Government of India has launched several new business loan schemes for the SMEs.

SMEs need financial support from the Government and private fintech players by way of SME lending,

Most SMEs face problems like high-interest rates, difficulty arranging collateral and third-party guarantee, while accessing finance. Further traditional banking channels impose the burden of extensive paperwork and prolonged timeline of loan approval. We shall into the quick business loans that SMEs can avail from the private sector Fintech lender and Government schemes:

  1. Private sector Fintech lenders: NBFC provide SME lending at competitive interest rates and favorable conditions. These include zero collateral cover, unsecured business loan, flexibility in repayment structure and prompt business loan disbursement.
  2. List of Government Loan Schemes for New Businesses
  • The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

This provides monetary support to the micro and small enterprises (MSME) in the form of collateral-free credit finance. Both existing, as well as new enterprises, are eligible to avail working capital credit.

 The term loans per borrowing have a ceiling limit of up to INR 100 lakhs. The loan amount is contributed by the Government and SIDBI (Small industries development bank of India) in the ratio of 4:1.

  • NSIC Government Subsidy for Small Business (NSIC):

NSIC extends subsidies for small scale businesses under two options

  1. Raw material assistance: Help to SMEs by financing the purchase of raw material both indigenous and imported
  2. Marketing assistance: Grants funds to the SME’s to enhance competitiveness and market value of their products.
  • Credit Link Capital Subsidy Scheme for Technology Upgradation (CLCSS)

This scheme is run by the Ministry of Small-Scale Industries (SSI) facilitates technology upgradation of the manufacturing and business processes of SMEs by providing them an upfront capital subsidy of 15%. The maximum limit of the subsidy is restricted to INR 15 lakhs. All sole proprietorship, partnership firms, cooperative, private and public limited enterprises and companies are eligible under this scheme.

This enables SMEs to procure imported machinery, which helps in the reduction of cost of production. This helps SMEs to effectively compete on a local and global scale.

  • Market Development Assistance Scheme for MSMEs

The scheme aims to help Indian manufacturing SMEs to gain market share in the international markets. This funds SME participation in the international trade fairs and exhibitions under MSME India stall. The scheme also offers fund for sector-specific market studies by industry associations, export promotion councils. There is reimbursement of 75% of the one-time registration fee and 75% of yearly fees (recurring) paid to GSI by SMEs for the first three years for the barcoding.

  • MUDRA LOAN

Mudra refers to Micro-Units Development and Refinance Agency Ltd, which works on the principle of funding the unfunded. This extends refinancing help to micro units in the start-up as well as the growth phase. Mudra loan provides low-cost credit/ funding to the MFI (Microfinance Institutes).

As per the MUDRA scheme, there are three loan structures:

  1. Sishu-Loan up to INR 50,000/-
  2. Kishore- Loan up to INR 50,000/- to 5,00,000/-
  3. Tarun- Loan from INR 5,00,000/- to up to INR.10 lakhs.
  • National Bank for Agriculture and Rural Development (NABARD)

This scheme is focussed on helping the agriculture-based business enterprises in rural areas. Village and cottage industries are the major beneficiaries under this scheme and are provided financial assistance.

SMEs are the backbone of Indian economy. Fintech lenders and the Government have come forward to provide the necessary financial help to this group to grow. However, private NBFC lenders have a clear advantage of providing quick business loans. The government schemes are aimed at a specific target group and generally take a long time to be approved.