MSMEs are growing and contributing to the immense growth in respect to the financials of our country and to grow further and establish their sound footing MSME’s require funding and financial assistance.
The Government of India has taken many steps and launched many schemes to provide credit to MSMEs.
One of the key aspects of MSMEs is access to credit as small and medium industries, factories are scattered in every part of the country and most of the MSME’s are still to be equipped with tech enabled financing models.
Several entrepreneurs, NBFC’s, private and govt. banks offer credit facility and unsecured loans to MSME ‘s to run their business related expenses. Yet it is seen that MSME’s encounter pressing concern’s when it comes to financing , securing business loans and understand certain crucial aspects like documentation related works to secure finance from right place without getting into much hassels.
To provide credit facilities for the MSMEs, the Government of India has come up with many loan schemes, and even the banking sector and financial institutions grant loans to them. Some of the well-recognised MSME loan schemes of 2020, popular due to the business getting disrupted due to COVID-19, are discussed below.
Financial institutions also offer loans to MSMEs under various govt. schemes. There are specific criteria to be met for business owners to receive benfits of loan facility.
Some of the top ten schemes are :
- Pradhan Mantri Mudra Yojana (PMMY) •Prime Minister’s Employment Generation Programme (PMEGP)•Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT MSE)•Credit Linked Capital Subsidy Scheme (CLCSS)•Equity Infusion for MSMEs through Fund of Funds •Credit Guarantee Scheme for Subordinate Debt (CGSSD)• SIDBI Make In India Loan For Enterprises (SMILE)•MSME Business Loan for Startups in 59 Minutes •MSME Loan Scheme by Banks
Pradhan Mantri Mudra Yojana (PMMY)
This scheme provides loans up to 10 lakh to non-corporate and non-farm small or micro-enterprises. These loans are classified as MUDRA (Micro Units Development and Refinance Agency Limited) loans under PMMY.MUDRA are a non-banking financial company (NBFC) which supports the development of MSMEs. MUDRA provides support by refinancing to banks, microfinance institutions (MFIs) and NBFC for lending loans to micro units having a loan requirement of up to 10 lakhs. The borrowers can approach any of these lending institutions or apply for loans online through the
Nature of Assistance – ‘Shishu’ offers loans up to Rs.50,000. ‘Kishor’ provides loans above Rs.50,000 up to Rs.5 lakhs. ‘Tarun’ provides loans above Rs.5 lakhs up to Rs. 10 lakhs to micro-units.
Prime Minister’s Employment Generation Programme (PMEGP)
The Prime Minister’s Employment Generation Programme (PMEGP) is a merger of two schemes of Prime Minister’s Rojgar Yojna (PMRY) and Rural Employment Generation Programme (REGP). This scheme focuses on generating self-employment opportunities to the unemployed youth and traditional artisans through micro-enterprise establishments in the non-farm sector. It is executed by the Khadi and Village Industries Commission (KVIC) which functions as the nodal agency for this scheme at the national level.
At the state level, this scheme is implemented through the State KVIC Directorates, District Industries Centres (DICs), State Khadi and Village Industries Boards (KVIBs), and banks. Under this scheme, the KVIC routes government subsidy through designated banks for eventual disbursal to the entrepreneurs or beneficiaries directly into their bank accounts.
Any individual/s who is/are above 18 years of age is/are eligible. The individual/s should be at least VIII standard pass for the projects, in the manufacturing sector which cost above Rs.10 lakh and in the business or service sector which cost above Rs. 5 lakh.
Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT MSE)
Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) together established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). CGTMSE is established in order to implement a credit guarantee scheme for MSMEs.
The Government of India and SIDBI contribute to the corpus of this scheme. Without any third-party guarantee or collateral this scheme has been undertaken. The guarantee coverage under this scheme ranges from 85% for Micro Enterprise (up to Rs 5 lakh), 75% for others and 50% for retail activity.
Both existing and new enterprises are eligible under the scheme. The candidates meeting the eligibility criteria may approach banks or financial institutions and select Regional Rural Banks which are eligible for getting assistance under this scheme.
The guarantee cover available under the scheme is to the extent of 50%/75%/ 80% or 85% of the sanctioned amount of the credit facility. For micro-enterprises up to 5 lakhs, the extent of guarantee cover is 85%.
Credit Linked Capital Subsidy Scheme (CLCSS)
The Credit Linked Capital Subsidy Scheme (CLCSS) renders a subsidy for technology upgradation to the MSMEs. This scheme provides 15% subsidy for additional investment up to Rs.1 crore for technology upgradation by MSMEs. The candidates meeting the eligibility criteria may approach 12 nodal banks or agencies to avail the subsidy under this scheme. These 12 nodal banks or agencies are SIDBI, NABARD, SBI, BoB, PNB, BOI, SBBJ, TIIC, Andhra Bank, Corporation Bank, Canara Bank and Indian Bank.
Any MSME unit is eligible under this scheme. But the units replacing existing equipment or technology with the same equipment or technology will not qualify for a subsidy under this scheme. This scheme provides an upfront subsidy of 15% on institutional credit up to Rs.1 crore (i.e. a subsidy cap of Rs.15 lakh) for identified sectors/subsectors/ technologies.
Equity Infusion for MSMEs through Fund of Funds To encourage MSMEs to grow and get listed on stock exchanges, the Fund of Funds provides equity funding for MSMEs who have growth potential and viability.
This scheme will be able to intermediate different types of funds into underserved MSMEs and address the growing needs of viable and high growth MSMEs with the intervention of the government. All MSMEs are eligible.
MSMEs can apply through Investor Funds onboarded and registered with the proposed Fund of Funds.
The Government of India will support VC or PE firms in investing in commercially viable MSMEs for meeting their growth requirements. The proposed fund of funds will encourage private sector investments in the MSME with leverage of Rs.50,000 crore.
Credit Guarantee Scheme for Subordinate Debt (CGSSD)
Credit Guarantee Scheme for Subordinate Debt (CGSSD) seeks to extend support to the promoters of the operational MSMEs which are stressed and have become NPA as on 30th April 2020. The promoters, in turn, will infuse this amount in the MSME unit as equity and thereby increase the liquidity and maintain the debt-equity ratio.
Subordinate debt will be of considerable help to sustain and revive the MSMEs which have become NPA or are on the brink to become NPA. The promoters of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs.75 lakh whichever is lower.
The promoters of MSME who meet the eligibility criteria can apply for this scheme. The maximum tenure for repayment is ten years. There is a moratorium of 7 years on payment of the principal.
SIDBI Make In India Loan For Enterprises (SMILE)
The SIDBI Make in India Loan for Enterprises (SMILE) is intended to take forward the Government of India’s ‘Make in India’ campaign and help MSMEs take part in this campaign. This scheme provides a soft loan in the nature of quasi-equity.
It also provides term loans on relatively soft terms to MSMEs to meet the required debt-equity ratio for their establishment. It also provides loans to the existing MSMEs to pursue opportunities for their growth.
Eligibility – New enterprises in the manufacturing and the services sector is covered under this scheme. The existing enterprises undertaking expansion for taking advantage of the new emerging opportunities are eligible under this scheme. Nature of Assistance – The minimum loan size is Rs.10 lakh for equipment and finance. The minimum loan size for others is Rs.25 lakh. The repayment period is up to 10 years, including moratorium of up to 36 months.
MSME Business Loan for Startups in 59 Minutes
The Government of India recently announced to offer MSME Business Loan for Startups in 59 Minutes. A new web portal was launched to provide loans to MSMEs in 59 Minutes. The processing of the loans for MSMEs on this online portal is fully automated. This portal will process the loans within one hour. After the loan is approved through this portal, the loan is disbursed to the applicant of the loan in the next seven or eight working days.
This scheme aims at automation and digitisation of various processes of business loans offered, which includes the term loans, working capital loans and mudra loans.
Eligibility – Any existing business or MSMEs which wants to apply for a business loan (term loan/ working capital loan) in-principle approval is eligible. The business should be IT compliant and must have a six months Bank Statement Facility.
Both GST registered as well as not-registered businesses are eligible. If any business not registered with GST or has not filed ITR or does not have a bank statement applies for mudra loan, then the business can provide the related details by self-declaring the same. The mudra loan in-principle approvals are provided from Rs.10,000 to Rs.10 lakh.
MSME Loan Scheme by Banks
Banks and other lending institutions offer term loans and working capital loans to MSMEs. The working capital loans are offered to MSMEs by banks to fulfil their daily cash requirements. The term loans are offered to MSMEs for capital expansion, capital expenditure or buying fixed assets.
Each loan scheme offered by the banks/financial institutions has different interest rates. The interest rates are based on various factors such as desired loan amount, repayment tenure, nature and tenure of business, creditworthiness and repayment capability.
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