India was recently termed as the only, truly emerging market in the world at the moment. A part of this growth is fueled by the micro, small and medium enterprises of the country. The SME sector contributes over 40% of the total GDP and remains a critical source of employment for the India’s growing population. Recognizing the importance of SME growth in the post-demonetization era, the government has started some new business loan schemes and boosted other existing ones. Here are the top five business loan schemes from the government of India that you can avail for small business finance.

MSME Business Loans in 59 Minutes

Perhaps the most talked about business loan scheme right now is the ‘MSME Business Loans in 59 Minutes’, a scheme first announced in September 2018. The loans under this scheme are given for financial assistance and encouragement of MSME growth in the country. Both new and existing business can utilize the scheme for a financial assistance up to ₹ 1 crore. The actual process takes 8-12 days to complete, while the approval or disapproval is granted within the first 59 minutes of application. It is a refinancing scheme, wherein five authorized public sector banks will grant the funds. The interest rate depends on the nature of your business and credit rating. No information has been given on subsidizing the principal amount or interest subvention.

To apply for business loan under this scheme, you need GST verifications, Income Tax verifications, bank account statements for the last 6-months, ownership related documentation, and KYC details. More information on application and approvals can be sought by visiting the SIDBI portal for this business loan.

MUDRA Loans

Micro-units Development and Refinance Agency (MUDRA) is an organisation established by the government of India to provide business finance to micro-business units. The loans under the scheme are given on the pretext of ‘funding the unfunded’. Since small companies and startups are often left to their own devices for financing their venture, the government has created the concept of low-cost credit to such undertakings. MUDRA Loans are also a refinanced business loans, approved and disbursed through public sector banks, private sector banks, co-operative societies, small banks, scheduled commercial banks and rural banks that come under the scheme. The loans are generally given to micro or small businesses operating in the manufacturing, trading and services sector. The MUDRA Loans are structured as under,

  • Sishu Loans up to Rs. 50,000/-
  • Kishor Loans up to Rs. 5,00,000/-
  • Tarun Loans up to Rs. 10,00,000/-

Credit Guarantee Fund Scheme for Micro and Small Enterprises

The CGMSE was first launched in the year 2000 as a monetary support scheme for micro and small enterprises. It offers collateral-free credit for both new and existing business units that satisfy its eligibility criteria. The scheme provides working capital loans up to ₹ 10 lakhs without any collateral. However, for all credit facilities above ₹ 10 lakhs and up to ₹ 1 crore only primary security or mortgage of land and building associated with the building is obtained and such eligible accounts are covered under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Asset created through the credit facility which are associated with the business unit are also considered as security when the loan amount exceeds ₹ 10 lakhs.

The business loans under this scheme are financed by various public and private sector banks covered under the scheme.

National Small Industries Corporation Subsidy

The NSIC subsidy for small businesses offers two kinds of financial benefits – Raw Material Assistance and Marketing Assistance. Under the raw material assistance scheme of NSIC, both indigenous and imported raw materials are covered. Under the marketing support, funds are given to SMEs for enhancing their competitiveness and the market value of their products and services. The NSIC is mainly focused on funding small and medium enterprises who wish to improve / grow their manufacturing quality and quantity.

Credit Link Capital Subsidy Scheme for Technology Upgradation

This scheme allows small businesses to upgrade their process by financing technological upgradation. The technological upgradation can be related to numerous processes within the organization, such as manufacturing, marketing, supply chain etc. Through the CLCSS scheme, the government aims to reduce the cost of production of goods and services for small and medium enterprises, thus allowing them to remain price competitive in local and international markets. The scheme is run by the Ministry of Small-Scale Industries. The CLCSS offers an up-front capital subsidy of 15% for eligible business. However, there is a cap to the maximum amount that can be availed as subsidy under the scheme, which is set at ₹ 15 lakhs. Sole proprietorships, partnership firms, co-operative, private and public limited companies come under the ambit of this business loan scheme.

An Alternative: Quick Business Loans from Lendingkart

While all these schemes display the commitment of the past and present Indian governments for developing the economy of the nation, there is much that needs to be done to make the schemes effective. For example, the refinancing and subsidy model used by the government takes away the ‘quick’ factor from business loans touted by the schemes. Since these loans are essentially funded by the government sponsored banks, the turnaround time is in weeks or even months, which is detrimental for a small business owner looking for quick business finance. Even the most ambitious of all these schemes, the 59 Minutes Loan for MSMEs, takes up to 2 weeks in reality.

On the other hand, MSME finance by non-banking financial companies like Lendingkart is approved and disbursed within 72 hours. This is done by combining business analytics and online technologies for loan approval and disbursal instead of relying on paperwork and age-old processing techniques. For instance, Lendingkart offers business loans online through their website or mobile app. Simply log-in to apply for a business loan, get a same- day approval, accept the quote and upload your documents digitally for verification. The entire process hardly takes 10-minutes of your time and the verification is completed within 3 working days by Lendingkart. So, you have the funds ready for use within a quarter of the time it takes a government scheme to disburse a loan.

Small & Medium Enterprises Advantage Fund (SMEAF-II)

OBJECTIVE OF THE FUND

  • To promote SME segment in the Indian economy, in lines with Government’s “Make in India” initiative.
  • To invest in projects with high growth prospects & scalability with focus on innovation and technology.
  • Investments in small and medium enterprises under the Fund would be in diversified, growth oriented and emerging sectors of the economy.

NEED FOR SUCH FUND

Micro, Small and Medium Enterprises constitute the backbone of an economy in maintaining an appreciable growth rate and in generating employment opportunities. It is needless to mention that the contribution of MSMEs to the Indian economy in terms of employment generation, containing regional disparities, fostering equitable economic growth and enhancing export potential of the country has been quite phenomenal. India is expected to emerge as one of the leading economies in the world over the next decade in the light of a positive political and economic scenario. In India, MSME are very large in numbers, diverse in type of business and are spread across remote geographies of a vast country.

To promote SME segment in the Indian economy, in lines with Government’s “Make in India” initiative, IFCI Venture has floated SME Advantage Fund (SMEAF), which is a SEBI registered AIF Category -II fund.

CONSTITUTION / STRUCTURE OF FUND

Domestic Fund

SME Advantage Fund is SEBI registered AIF Category -II fund. IFCI Venture has been appointed as Investment Manager of the Fund.

SIZE OF FUND

The corpus size of the fund is INR 500 Crore with Green Shoe option of Rs. 250 Crore

TIE UP FOR FUND

IFCI Ltd. is the Sponsor and Settlor of the Fund. IFCI as a Sponsor and Investor has committed to contribute upto Rs. 50 Crore (Rs. 5 Crore as Sponsor contribution as specified under AIF Regulations and Rs. 45 Crore as the lead investor) in SMEAF. The balance fund corpus would be raised from other financial institutions/banks/companies/multilateral agencies and foreign investors

LIFE OF FUND

8 years with two prolongation options of 1 year each

INVESTMENT FOCUS

The investment under SMEAF shall be made in Indian manufacturing and services companies engaged in the following segments:

  • Growth oriented, government focused and sunrise sectors of the economy such as:
  • Auto-Component
  • Light and Medium Engineering
  • Chemical
  • FMCG products
  • Pharmaceutical
  • IT & ITeS
  • Defence
  • Electronics & EMSD
  • Telecommunication
  • Food Processing & Agro products
  • Petro-chemicals
  • Logistics & transportation
  • Biotechnology
  • E-governance
  • E-learning
  • Healthcare
  • Energy efficiency

INVESTMENT CRITERIA

The Investment Criteria for investment under SMEAF is as under:

  1. The investment under SMEAF would generally be made in companies promoted by professionally qualified and/ or experienced promoters. The promoters/companies should have assimilated the project/process/ technology and can establish commercial viability of venture.
  2. The investments will generally be made in companies proposing to either manufacture / deliver critical products/ services or have unique critical business processes.
  3. The investee companies should propose to set up projects as per well-conceived/developed business plan.
  4. The Investment will be preferred in late start-up companies undertaking expansion of business.
  5. The investments will be made in Indian companies qualifying the objective of the fund. Such Indian companies may also include small and medium enterprises with prospects for accelerated growth and generating high returns on investment.
  6. The investee companies with features such as Global competence, Corporate Governance, etc. would be preferred for investment under the fund.
  7. The companies should be in position to provide exit from investment in a period of 5-6 years.
  8. The investment will generally be linked to a specific business project of the company.
  9. The investments under SMEAF will be made as per limit prescribed under SEBI Regulations.