Government Loan Schemes for Business: Mudra, PMEGP, Stand-Up India and CGTMSE

A government loan for business is not money handed out by a ministry. In almost every case the loan comes from a bank or another regulated lender, and the government scheme makes it easier or cheaper: by refinancing the lender, by giving a subsidy, or by guaranteeing the loan so you need no collateral. Knowing which scheme fits your case saves you months of running around.

Below are the four central schemes small founders ask about most: Mudra, PMEGP, Stand-Up India and CGTMSE. Limits and rules are as published on the official websites. Schemes are revised from time to time, so check the official portal before you apply.

Never pay an agent to get a scheme loan or subsidy. Applications are free on the official portals and at bank branches.

1. Pradhan Mantri Mudra Yojana (Mudra loan)

Mudra loans are for non corporate, non farm micro and small enterprises doing manufacturing, trading or services, and for activities allied to agriculture such as poultry, dairy and food processing. Shopkeepers, vendors, small manufacturers, repair shops, transport operators with commercial vehicles and service businesses can all apply.

Key points:

• Mudra loans are collateral free. They are guaranteed through the Credit Guarantee Fund for Micro Units.
• MUDRA itself does not lend to you. It refinances banks, regional rural banks, small finance banks, NBFCs and microfinance institutions, which give the loan.
• Interest rate is set by the lending institution within RBI rules. It is not fixed by the scheme.

How to apply: visit a bank branch or other lending institution with your KYC, business proof, a simple project plan and quotations, or apply online through the government's JanSamarth portal (jansamarth.in), which lists Mudra among its schemes. Details are on mudra.org.in.

2. PMEGP: Prime Minister's Employment Generation Programme

PMEGP is a credit linked subsidy scheme for setting up new micro enterprises. You take a bank loan, and the government gives a one time subsidy called margin money. KVIC is the national nodal agency, and the scheme is run through KVIC, state Khadi and Village Industries Boards and District Industries Centres.

Maximum project cost: ₹50 lakh for manufacturing and ₹20 lakh for business or service units. Land cost is not included.

The bank lends the balance of the project cost. The subsidy is kept in the loan account for a lock in period of three years and then adjusted, if the unit is running properly.

Eligibility in short:

• Any individual above 18 years. There is no income ceiling.
• At least Class VIII pass for manufacturing projects above ₹10 lakh and service projects above ₹5 lakh.
• Only new projects. Units that already got a government subsidy under another scheme are not eligible.
• Only one person per family (self and spouse) can get PMEGP help.
• Self help groups, charitable trusts, societies and production cooperative societies can also apply.
• Activities on the negative list, such as meat processing and sale, intoxicants and tobacco products, are not allowed.
• Entrepreneurship development training (EDP) must be completed before the bank releases the loan. It is not needed for projects up to ₹2 lakh, or if you have already done a recognised training of the required length.

Second loan for upgradation: successful PMEGP units can get a second loan to expand, with a project cost up to ₹1 crore for manufacturing and ₹25 lakh for services. The subsidy is 15% (20% in the North East and hill states), up to ₹15 lakh for manufacturing and ₹3.75 lakh for services (₹20 lakh and ₹5 lakh in the North East and hill states).

Current status: the last approved period of PMEGP has ended, and the government has said that further subsidy release depends on approval for continuing the scheme. Before you plan around it, check the PMEGP e portal or ask your District Industries Centre whether new applications are being taken.

How to apply: online only, on the PMEGP e portal at kviconline.gov.in/pmegpeportal. Fill the form for a new unit, verify Aadhaar, upload your project report and certificates, and submit to get an application ID. The implementing agency scores the application and forwards it to the bank you chose. After sanction, you deposit your own contribution, finish EDP training, and the bank claims the subsidy. The portal accepts applications in many regional languages.

3. Stand-Up India

Stand-Up India was set up to help SC, ST and women entrepreneurs start a first business. As designed, it offered bank loans between ₹10 lakh and ₹1 crore for a greenfield (first time) enterprise in manufacturing, services, trading or activities allied to agriculture. Key features were:

• Borrower aged 18 or above. For companies and firms, at least 51% shareholding and control with an SC, ST or woman entrepreneur.
• A composite loan (term loan plus working capital) for a large part of the project cost, with the borrower bringing at least 10% of the cost.
• Repayment over up to seven years with a moratorium of up to 18 months.
• Collateral or a guarantee under the Credit Guarantee Fund Scheme for Stand-Up India Loans, as decided by the bank.

Current status: the original scheme period has ended, and the government has announced that a revamped Stand-Up India scheme for SC, ST and women entrepreneurs is being introduced. Before you plan around it, check standupmitra.in or ask a scheduled commercial bank branch whether new applications are open and on what terms.

4. CGTMSE: collateral free credit guarantee

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) does not give loans. It gives the lender a guarantee, so the lender can give you a loan without collateral or a third party guarantee.

• Who: new and existing micro and small enterprises, through eligible banks and lending institutions.
• How much: collateral free credit up to ₹10 crore per borrower can be covered under the current limit.
• Cover: the guarantee covers about 75% to 90% of the amount in default, depending on loan size and borrower category. Loans to women led enterprises get the highest cover, 90%.
• Cost: an annual guarantee fee is charged on the guaranteed amount. Lenders usually pass it on to the borrower. Ask your bank for the exact fee.

How to apply: you do not apply to CGTMSE directly. Apply for the loan at your bank and ask that it be covered under CGTMSE. Scheme details are on cgtmse.in.

MSME loan for new business: which scheme fits?

States also run their own subsidy and interest support schemes. Ask the District Industries Centre (DIC) in your district.

Papers to keep ready

• Aadhaar and PAN of the applicant and partners or directors.
• Proof of business address.
• Udyam registration certificate, and GST registration if applicable.
• Caste or special category certificate, if you claim one.
• Education certificate and EDP certificate for PMEGP, where required.
• Project report with cost, machinery quotations and expected sales. Our business plan template helps.
• Bank statements and income tax returns for existing businesses.

Before signing, check your EMI on the EMI calculator and read our full business loan guide.