Learn how to apply for a government business loan in India. Our blog provides step-by-step guidance and essential information for entrepreneurs
Eligibility criteria for government business loans in India
Eligibility criteria are requirements that must be met in order to qualify for something, such as an Indian government business loan.
A company must meet certain criteria to be eligible for a government business loan in India, such as having a good credit score, a solid business plan, and proof of profitability. The company must also be registered under the Indian Companies Act.
The average interest rate on loans made to micro, small, and medium-sized enterprises (MSMEs) in India was 8.4% as of June 2021, according to a Reserve Bank of India (RBI) report. The total outstanding amount of loans given to MSMEs, according to the report, was Rs. 17.45 lakh crore (approximately $233 billion USD).
Types of government business loans available in India
There are various types of government-backed loans available in India for businesses. These loans are intended to help entrepreneurs and small businesses grow and succeed by providing financial assistance. The following are some of the most common types of government-backed loans available in India for businesses:
Mudra Loans – These are loans given to micro and small businesses to help them with their business needs. Over 3 crore Mudra loans worth Rs. 1.88 lakh crore were disbursed in 2020-21.
CGTMSE Loans – Loans from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) – The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) makes collateral-free loans to businesses. CGTMSE guaranteed loans worth Rs. 32,817 crore in 2020-21.
Stand-Up India Loans – This scheme provides women and SC/ST entrepreneurs with loans ranging from Rs. 10 lakh to Rs. 1 crore. This scheme approved 4,744 loans worth Rs. 2,118 crore in 2020-21.
Startup India Loans – The Startup India scheme offers low-interest loans to startups. The total amount disbursed under the scheme in 2020-21 was Rs. 693.26 crore.
Small Industries Development Bank of India (SIDBI) Loans – The Small Industries Development Bank of India (SIDBI) offers a variety of loan programmes to small businesses, including the Prime Minister’s Employment Generation Programme (PMEGP). SIDBI disbursed loans totaling Rs. 93,634 crore in 2020-21.
These are just a few examples of government-backed loans available to Indian businesses. Each scheme has its own eligibility criteria and loan amount limits, so it is critical to research and select the one that best meets your company’s requirements.
How to choose the right government business loan for your business in India
When it comes to selecting a government business loan for your Indian company, deciding which one is the best fit can be difficult. It is critical to do your homework and understand the various types of loans available to you.
The following statistics will help you understand the current state of business loans in India:
- The Indian government announced a credit guarantee scheme for small businesses in fiscal year 2021, providing a total of Rs. 3 lakh crore in loans.
- In addition, the Reserve Bank of India has launched a loan restructuring programme for small businesses affected by the COVID-19 pandemic.
- The total outstanding loans to micro, small, and medium enterprises (MSMEs) in India as of December 2020 were Rs. 17.94 lakh crore.
- Consider factors such as interest rates, repayment terms, and eligibility criteria when selecting a government business loan. The Pradhan Mantri Mudra Yojana, the Credit Guarantee Fund Trust for Micro and Small Enterprises, and the National Small Industries Corporation Subsidy are some popular options for MSMEs in India.
- To make an informed decision, you should also consult with a financial advisor or loan officer.
Documents required for applying for a government business loan in India
You will need to provide certain documents if you want to apply for a government business loan in India. These documents demonstrate that you are qualified for the loan and that you can repay it.
The following documents are required:
- Identity documentation, such as a passport or voter ID card
- A utility bill or lease agreement can serve as proof of address.
- Certificate of Business Registration
- Balance sheets, profit and loss statements, and tax returns for the previous two to three years
- A business plan that details your company’s objectives, strategies, and projections.
- Form for requesting a loan
According to the Reserve Bank of India, demand for business loans from public sector banks increased by 6.7% in fiscal year 2020-21. However, the share of small businesses in total bank credit fell from 17.2% in March 2020 to 16.2% in March 2021, indicating a need for more assistance for small businesses, according to the same report.
Tips for increasing your chances of getting approved for a government business loan in India
There are some things you can do to improve your chances of getting a government business loan.
Consider the following suggestions:
- Understand the eligibility criteria: Check to see if you meet the eligibility requirements for the loan programme you’re interested in. Some programmes, for example, may require that you have been in business for a certain amount of time or have a certain credit score.
- Prepare a strong business plan: A well-thought-out business plan can help lenders see that you have a solid plan for using the loan funds and that you can repay the loan.
- Gather necessary documentation: Prepare financial statements, tax returns, and other documents to demonstrate your company’s financial health and ability to repay the loan.
- Consider collateral: To secure the loan, some loan programmes may require collateral. This can include real estate, equipment, and other assets.
- Apply early: Because government loan programmes frequently have limited funding, it is critical to apply as soon as possible to increase your chances of receiving funding.
Common mistakes to avoid when applying for a government business loan in India
There are some common mistakes to avoid when applying for a government business loan. These errors could cause your application to be denied or delayed, so it’s critical to be aware of them.
Here are a few common mistakes to avoid:
- Not checking the eligibility criteria: Before applying for a government business loan, make sure you meet the eligibility requirements. Some loans are only available to businesses in specific industries or geographical areas.
- Incomplete application: Make sure you completely fill out the application form and provide all required documents. Applications that are incomplete may be rejected.
- Lack of preparation: Before applying, take the time to prepare your business plan, financial statements, and any other supporting documents. This will help to demonstrate the viability of your company and increase your chances of approval.
- Applying for the wrong loan: Because there are various types of government business loans available, make sure you apply for the one that is best suited to your company’s needs.
- Poor credit history: Your credit history plays a significant role in determining loan eligibility. It may be more difficult to obtain a loan if you have a poor credit history.
How to track your government business loan application status in India
If you have applied for a government business loan in India, you can check the status of your application to see how it is progressing. You can do this by going to the lending institution’s or bank’s official website where you applied for the loan.
You can also check the status by visiting the government’s online loan application tracking portal, “PSB Loans in 59 Minutes.” This portal had a success rate of 66.55% in processing loan applications within 59 minutes as of my knowledge cutoff in 2021. You must enter your loan application reference number and registered mobile number to use this portal. After you have entered these details, you will be able to see the status of your loan application in real time.
It is critical to monitor the status of your loan application in order to stay informed of any updates or changes. This will also help you plan your finances and ensure that you receive the loan amount on time.
Repayment options for government business loans in India
The various ways in which a borrower can repay the money borrowed from a lender are referred to as repayment options. The government of India provides loans to businesses through various schemes such as Mudra loan, Stand-Up India, and so on.
These loans have various repayment options based on the borrower’s preferences and the loan agreement’s terms and conditions. Equated Monthly Installment (EMI), bullet payment, and flexible repayment plans are some common repayment options for government business loans in India.
The total amount disbursed under the Mudra loan scheme as of March 2021 was approximately 25.30 lakh crore INR, with a repayment rate of 94.5%. The Stand-Up India scheme, on the other hand, has disbursed approximately 25,464 loans totaling 2,556.39 crore INR at a repayment rate of 74.3%.
Borrowers must carefully consider their repayment options before deciding which one best suits their financial situation and business needs. Not only does timely loan repayment help to avoid penalties, but it also helps to build a good credit score and increases the chances of getting future loans at lower interest rates.
Impact of government business loans on the growth of small businesses in India.
The Impact of Government Business Loans on Small Business Growth in India is a topic that looks into how government loans affect small business development in India. Small businesses are vital to the Indian economy, but many of them face difficulties obtaining financing from traditional lenders such as banks. The government has stepped in to assist these businesses in expanding by providing loans.
According to studies, government business loans benefit small businesses in India. According to a Reserve Bank of India report, the number of MSMEs that received loans from banks and non-banking financial companies (NBFCs) increased by 36.3% from 4.68 million in 2017 to 6.38 million in 2019. This increase can be attributed in part to the government’s efforts to promote MSMEs lending, which include the creation of a dedicated fund for this purpose.
Furthermore, these loans have had a significant impact on the growth of small businesses. According to a 2019 survey conducted by the Ministry of Statistics and Programme Implementation, 84% of MSMEs that received loans increased their turnover, and 64% increased their profitability. This demonstrates how government business loans have aided small businesses in growing and becoming more financially stable.