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MSME Loan for Startup Businesses

MSME loans are popularly termed “under 60-minute loans”. The government introduced the MSME loans in September 2018. This startup business loan by the Indian government boosts the economy by funding small enterprises.

MSME startups loans can give your business up to 1 crore loan amount. The loan processing might take a week or longer but the loans are typically approved in 60 minutes with no collateral and several credibility requirements.

Interest rates are proportional to the entrepreneur’s work. The interest rate on the MSME loan starts at 8.5% and gradually increases.

MSMEs and Startup Business Loans by the Indian Government

Since the adoption of the MSME Act, 2006 and the Digital India Initiative, there has been an increase in MSME loans for startups in India. However, in the early stages, it is difficult for MSMEs and startups to secure funding.

Also, India’s MSME sector and new businesses have limited access getting formal credit. However, the startup business loan for women in India by the government offers MSMEs loans to help them secure capital.

Several top financial institutions offer attractive MSME loans for startups.

Eligibility for Startups and MSMEs to get Business Loans

For each business MSME loan for startups, there are different eligibility requirements. However, the following are the general eligibility requirements for business loans

  • The applicant must be at least 21 years old and cannot exceed 65 years of age.
  • The individual who wants to apply must be an Indian citizen.
  • A business plan is required for the application.
  • MSMEs and startups must be established as sole proprietorships, partnerships, companies, or limited liability partnerships (LLP).
  • MSME loans for startup businesses need strong credit.

How to Apply for Government Startup and MSME Loans 

For various business financial assistance, the application process varies greatly. However, the general application process for government business loans is as follows

  • Applicants must go to the business loans programme’s website or the financial institution that gives loans to MSMEs and new businesses.
  • Click ‘Apply for Loan’ on the homepage.
  • The individual must fill out all of the required details, such as owner information, the loan amount they want, their annual turnover, details about their bank account, and years in business, and upload all necessary documentation.
  • After submitting all the information, a scheme or financial institution representative will contact the applicant to go over the loan documentation.
  • Once the loan application is granted, the bank will deposit the loan amount into the applicant’s bank account.

Required Documents for MSME Business Loans

Some paper documentation is necessary to obtain the startup loans under the MSME programme. Required documents are

  • KYC documents include a passport, Aadhar card, driver’s licence, voter ID, PAN card, and electricity bill.
  • Self-written business plan
  • The bank statement for the last 12 months and the ITR for the last year.
  • Certificate of incorporation for a business.
  • Proof of business address
  • Additional documentation necessary by the lender

Best Government Loans for a Startup Business

You can take advantage of many different plans through the MSME loan. Let’s examine the primary MSME loan schemes.

1. PMMY 

The Government of India’s Ministry of MSMEs introduced Pradhan Mantri MUDRA Yojana (PMMY) in 2015. This scheme aims to aid small and medium-sized businesses financially. Through the Mudra Loan Scheme, small and medium-sized enterprises are eligible for collateral-free loans of up to Rs 10 lakh in three categories.

  • ‘Shishu’ offers up to Rs. 50,000 in loans.
  • ‘Kishor’ offers loans between Rs.50,000 and Rs.5 lakhs.
  • ‘Tarun’ offers loans between Rs. 5 and 10 lakhs.

2. CGTMSE 

The startup business loan by the Indian government formed CGTMSE in 2000 to help small firms get funding. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) helps persons without business experience raise capital. This is a massive boost for first-time entrepreneurs.

3. 59-Minute MSME loan for startup business 

PSB Loans in 59 Minutes Platform provides Mudra & MSME loans for startups in 59 minutes. PSB loans are processed within an hour. Within seven to ten business days of loan approval, funds will be released to the applicant’s business.

PSB loans platform offers in-principle approvals up to Rs.5 crores. Working capital and term loans are available. Either collateral or no collateral is required to obtain the loans. The loans have interest rates that start at 8% and increase from there.

4. CLCSS 

The government’s CLCSS (Credit Linked Capital Subsidy Scheme) is a subsidy programme for small and medium-sized businesses. This is a tremendously good programme for business owners that have difficulty getting high-quality machinery.

This scheme aims to improve MSMEs’ technological standards by subsidising up to 1 crore in equipment and machinery. You must meet the PLI’s (Production Linked Incentive) requirements to be eligible.

5. Bank loan on a term basis 

Term loans are available with either fixed or variable interest rates. Any banking and financial organisation can approve and issue a term (short or long) loan. In both secured and unsecured forms, it can be put to a variety of productive uses, including

  • Expanding your business.
  • Invest in long-term assets.
  • Satisfy the needs of working capital.
  • Rent and salary payments.
  • Recruiting new employees, etc.

6. Loans from banks for working capital 

Working capital loans help MSMEs and startups meet regular funding requirements. These loans help meet short-term cash needs. However, these loans can’t be used for long-term investments or purchases. Interest rates for business loans range from 12% to 16%, depending on the company’s credit.

Various banks may have different loan amounts. But small businesses can get loans with a fixed interest rate if they borrow at least Rs.50,000.

7. Banks’ startups and MSMEs loan schemes 

In addition to working capital & term loans, financial companies and banks offer a range of business loans to MSMEs and startups. These new business loans can be used in a variety of organisational activities, including

  • Buying supplies and equipment.
  • Capital for business operations (working capital).
  • Fund necessary for expansion, etc.

The terms and interest rates that apply to the various loans programmes banks and other financial entities provide differ. In addition, the applicant can access information about the numerous small business loan plans banks offer on their respective websites.

The following financial institutions provide small firms with business loans

  • Nonbanking Financial Institutions (NBFIs) 
  • Small Finance Banks (SFBs)
  • Regional Rural Banks (RRBs)
  • Microfinance Organisations

8. SIDBI loans 

MSME sector development, promotion, and financing are managed by SIDBI, the Indian government’s major financial agency for small and medium-sized enterprises (SMEs). The SIDBI assists small firms in acquiring capital for developing, promoting, and leveraging their unique technology and products. In addition, the SIDBI offers a wide range of financial products and services to fulfil the needs of a wide range of enterprises.

9. NSIC Scheme 

NSIC is a government agency that promotes the growth of micro, small, and medium-sized enterprises (MSMEs) and startups across the country by providing market, technology, finance, and other services. This NSIC plan allows the procurement of raw materials with financing assistance for up to 180 days. MSMEs can get cash discounts, bulk purchasing, etc. Additionally, the NSIC offers the “Bank Credit Facilitation” programme. It helps MSMEs get credit. The eligible candidates can apply for NSIC schemes by visiting the website and reading about them.