MSME GST Loan Schemes – What You Need to Know

MSME stands for Micro, Small, and Medium Enterprises. India is a hub of MSME start-ups and in the year 2021-22, the contribution of MSME in the country’s GDP was around 30% which is a huge number. This is the reason why MSME is often termed as the backbone of the country’s economy. Adequate funding is quintessential for MSMEs to flourish and expand.

MSME startups often look for funding sources in order to supply sufficient capital, especially in the nurturing phase of the business. Since MSMEs are a huge part of the economy, the government of India has also initiated various programs and schemes to help MSMEs get loans easily. Various financial institutions and banks have also come forward to offer easy loans for MSME businesses. In this article, we will discuss various MSME startup loans that you, as an MSME business, can avail of financial support.

MSME Loan Schemes

MSME loan full form is Micro, small and medium enterprises loan. These loans are targeted towards serving businesses in the MSME space to ensure their growth and development. All those MSMEs seeking loans for daily cash flow or any other business operations need to register their business with the government of India. Some of the popular MSME loan schemes available are:

Pradhan Mantri Mudra Yojana (PMMY)

On 8th April 2015, the Prime Minister of India launched the popular Pradhan Mantri Mudra Yojana. It was launched to boost entrepreneurship in the country, and to support unserved and underserved industries in the economy. The rise of entrepreneurship in the country not only boosts economic output but also helps in employment generation, and development of business hubs. Any individual above 18 years of age with a business plan can pitch for the loan. Here are the features of the scheme:

• Loan offered up to ₹10 lakhs : To support business development through all stages, loan of up to INR 10 lakh is offered under this scheme. This ensures that businesses of all sizes and stages requiring loans for various purposes are covered and served.
• Non-corporate, non-farm small/micro enterprises can avail of PMMY : The only limitation of the PMMY scheme is that the enterprises in industries like farming, corporates, cannot benefit from this. This is to ensure that special attention is given to the small scale businesses in sectors apart from agriculture to ensure a rounded development of all sectors of the economy.
• NBFCs, RRBs, commercial banks, MFIs, and small finance banks offer PMMY : One of the key highlights of the PMMY scheme is that there are plenty of venues from where you can avail this loan, this is because any particular lending institution may not have the network to serve the wider population.

There are three stages of Pradhan Mantri Mudra Yojana loan disbursal:

Shishu

A loan of up to ₹50,000 is offered

Under Shishu Yojana, the loans are disbursed to the budding entrepreneurs who want to start their entrepreneurial journey by starting a business at a small scale. Hence, the amount under this scheme is capped at INR 50 thousand, as the purpose is to specifically serve the entrepreneurs who want to start a new business across various industries. The amount capping helps weed out any applicant who wants the loan for any other purpose.

Kishore

Once the business reaches another level, loans up to ₹50,000-₹5 lakhs are offered

Kishor yojana is targeted towards businesses who have been in operation for some time. The main goal of this scheme is to fund the working capital requirement of the businesses that are going concern. The amount capping under this scheme is INR 50 thousand to INR 5 lakhs is perfect to serve the issue of lack of working capital. By leveraging this scheme, existing small entrepreneurs can ensure that they have enough capital to run their businesses efficiently.

Tarun

In the third stage, Tarun, loans up to ₹10 lakhs are offered

Tarun Yojana under pradhan mantri mudra yojana targets the businesses that require capital to fund expansionary projects. These expansionary projects can serve various purposes like enhancing profitability, goodwill, or even entry in a new segment. The amount capped under this yojana of INR 10 lakhs is to ensure that the entrepreneurs are able to fund their expansionary projects without any hiccups. Expansionary projects concerning launching new products, expanding into a new category, or location, etc.

Prime Minister’s Employment Generation Programme (PMEGP)

Implemented by KVIC (Khadi and Village Industries Commission), PMEGP is a government-led initiative for small and medium enterprises. The features of the scheme are:

• Businesses can avail 15%-35% of their project cost as a subsidy under the Prime Minister’s Employment Generation Program. The PGEMP aims at employment generation across various industries by rendering support in forms of subsidies to the businesses. The businesses can benefit greatly from this as the subsidies mean cost saving on various projects which can be injected into the business to boost productivity and profitability further.
• Project cost should be between ₹10 lakhs to ₹25 lakhs for the manufacturing sector and ₹5 to ₹10 lakhs for the service sector. The only requirement is that the project should be large enough to have a tangible impact on the business which will help with employment generation of desired magnitude. The project cost requirement is to ensure that the subsidies are reaching the right businesses of sufficient scale which will have an impact of bigger magnitude.
• Anyone above the age of 18 years with an 8th standard pass can apply. The government and this scheme does not discriminate against entrepreneurs with less experience or low level of educational qualification. If the business is prudent and viable enough, the government is more than happy to extend support under this scheme. Hence, the minimum age and qualification criteria is kept at a level which will make a wider population of the entrepreneurs eligible for funding.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT MSE)

CGT MSE is a trust established jointly by the Small Industries Development Bank of India (SIDBI) and the Ministry of Micro, Small and Medium Enterprises. The trust is established for the financial needs of small and micro enterprises. Features of the scheme are:

• 75% of the loan amount borrowed from the bank is guaranteed by CGT SME trust : In case of default by the borrower, up to 75% of the borrowed amount is guaranteed by the CGTSME trust. This means decreased risks for the lenders, which ultimately results in enhanced lending to the borrowers under credit guarantee scheme for MSME.
• The funding is offered jointly by SIDBI and Small and Medium Enterprises : Joint offering helps the institutions manage their risks better while leveraging on the lending opportunity. This also results in increased lending to the applicants.
• Existing as well as new enterprises can apply : There are no restrictions based on the age of the business. Any eligible business irrespective of the date of commencement can apply for funding under this scheme.
• This is a collateral-free loan and the loan limit is ₹100 lakhs : Since up to 75% of the outstanding loan is backed by the CGTSME trust, the lending institutions are pretty much covered with respect to the risks, hence loans under this scheme are collateral free. This coupled with a limit of up to INR 1 crore, means enough capital reaching to the SMEs without any stringent collateral requirement.

Credit Linked Capital Subsidy Scheme (CLCSS)

For technology upgrades, a Credit Linked Capital Subsidy Scheme (CLCSS) loan is offered. It was introduced by the Ministry of Micro, Small, and Medium Enterprises. Features of the scheme are:

• A subsidy of up to 15% on the loan amount can be availed. The loan limit can be up to ₹1 crore : Under this scheme, since there is a handsome subsidy of up to 15%, the SMEs can benefit from enhanced borrowings as the effective repayment will be lesser. Subsidies coupled with the MSME loan interest rates offered, makes it a sweet deal for the entrepreneurs.
• 51 different types of sub-products are approved for loan : A wide array of sub-products are pre-approved for debt funding under this scheme, so businesses having these products as their primary offering can benefit greatly from this scheme.

Also Read: CLCSS – Full Form, New Scheme, Subsidy, Eligibility, Documents

Equity Infusion for MSMEs through Fund of Funds

Equity Infusion for MSMEs through Fund of Funds was introduced under the Aatmanirbhar Bharat package. The government of India initiated this scheme with the help of Self-Reliant India (SRI) Funds and the features of the same are:

• Up to ₹50,000 crore equity Infusion was introduced
• Up to ₹40,000 crore can be availed from Private Equity (PE) and Venture Capital (VC) funds and the rest of ₹10,000 crore from the government of India

MSME Business Loan for Startups in 59 Minutes

The government of India launched an online portal for loan disbursals to speed up the process of borrowing loans and initiating business operations. This online portal has an automated loan disbursal process that takes not more than 59 minutes. The features of the scheme are:

• Within 59 minutes, MSME loans are approved through this online portal. This quick turnaround time helps cater to more eligible applicants, this is a feature of great convenience as quick approvals means lesser missed opportunities due to lack of capital. Approval for an MSME loan in 59 minutes can help put borrowers at ease.
• The website is fully automated for fast operations : This automation helps in faster application submission, loan assessment, and approval. Which ultimately means the amount is disbursed at a lightning quick speed.
• The loan is disbursed within 7-8 days of approval : Such quick approval speeds are of great use to the businesses as having access to the capital quickly can help with increased efficiency and lesser missed business opportunities.
• Existing businesses with 6 months of bank statements can apply for the loan : This is a basic requirement which helps the lenders assess viability, as well as cashflow, and financial stability of the business.

Also Read: MSME/PSB Loans Within 59 Minutes

Credit Guarantee Scheme for Subordinate Debt (CGSSD)

Not every MSME may function as planned. Some of these may become NPA causing stress to both the owner and lender. So, to address the problem of stressed MSME, the government of India launched the Credit Guarantee Scheme for Subordinate Debt. The features of the scheme are:

• Those MSMEs that have become NPA as of 30th April 2020
• The NPA value will be turned into equity, thus increasing liquidity and stabilising the debt-equity ratio.

SIDBI Make In India Loan For Enterprises (SMILE)

Under the ‘Make In India’ campaign of the government of India, SMILE has been introduced. SIDBI Make In India Loan For Enterprises offers loans as quasi-equity. Features of the scheme are:

• The loan amount offered can range from ₹10 lakhs for equipment finance up to ₹25 lakhs
• The maximum repayment term is 10 years including 3 years of moratorium term
• Both new and existing enterprises can apply for MSME loan.

MSME Loan Scheme by Banks

Various banks and financial institutions also offer MSME loans to help MSMEs build and expand their business. Depending on the chosen plan and the financial institutions, the features and offers under the loan can differ. The basic features are:

• Banks and NBFCs offer working capital loans for enterprises that require liquid funds to meet daily cash requirements. These working capital requirements may arise due to several reasons such as unexpected surge or decline in demand, banks and NBFCs offering working capital loans to businesses translated into more efficient operations.
• Terms loans are also offered to help MSMEs expand their business. These term loans are usually of long tenure, and fixed repayment schedules. Term loans can be extremely useful to fund bigger expenses to help navigate through the business cycle easily.

MSMEs and Taxation

The government has introduced the Interest Subvention Scheme for MSMEs, accessible to scheduled commercial and cooperative banks. With this, eligible businesses can receive a two per cent per annum interest relief on their term loans during the scheme’s active period. The loans to MSMEs, which are up to INR 1 crore, can benefit from the interest subvention scheme.

Conclusion

MSMEs are the future of the Indian economy and continue to be major GDP contributors. This is why both the government and financial institutions have come forward to introduce various schemes and loan facilities to aid in the development of MSMEs. Owing to the variety of options available, a new or existing MSME can resort to the best available MSME GST loan schemes.

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