SMEs require financial assistance by way of external financing to smoothly conduct business operations. Further, India is largely made up of SMEs in the manufacturing of goods, provision of services and trading activities. 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 small business loans

Most SMEs face problems like exorbitant interest rates, problem arranging collateral and third-party guarantee, while obtaining finance. Further banks impose the burden of extensive paperwork and a prolonged period of time for loan approval. We shall look into the business loans that SMEs can avail from the private sector Fintech lender and Government schemes:

  1. Fintech lenders: NBFC provide small business loans at attractive interest rates and favorable conditions. These include the absence of collateral cover, unsecured business loan, flexibility in repayment structure and prompt business loan sanction.
  2. List of Government Loan Schemes for New Businesses
  • The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

This provides financial support to the micro and small enterprises (MSME) in the form of collateral-free credit finance. Working capital credit can be availed by both existing as well as new enterprises.

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 gives subsidies for small scale businesses under two options

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

This scheme, run by the Ministry of Small-Scale Industries (SSI) enables 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 to participate in this scheme.

This enables SMEs to import 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 grow market share in the global markets. This funds SME participation in the international trade fairs and exhibitions under MSME India stall. The scheme also offers monetary assistance 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 provides 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, the three loan structures are:

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

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

SMEs play a major role in the Indian economy. Fintech lenders and the Government of India have both provided the necessary financial help to this group to grow. However, the private NBFC lenders have a clear advantage of providing business loans owing to the speedy timelines of loan approval. Government loan schemes generally take a long time to be approved.