Small Scale Industries Loan


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Small Scale Industries Loan

Small-scale businesses in India have recently got the support of the Government as they have introduced new schemes to aid the small industry entrepreneurs and help them grow financially. The schemes provide loans with minimum to zero collateral at low-interest rates designed to reach almost every corner and remote area of the country.

The state and central government specifically designed business loan schemes for small-scale entrepreneurs that help them meet their requirements. Public sector banks also assist small businesses by providing financial support to fulfil their business goals.

The micro and small scale sector have a very competitive and profitable potential, which can give entrepreneurs a chance to grow or upgrade their business so long as they get appropriate financial support from the government. The entrepreneurs in small-scale sectors have 2 options for getting financial support: the government scheme, which is the Pradhan Mantri MUDRA Yojana(PMMY) and other borrowings from lenders like Lendingkart etc.

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The government has set up some institutions regarding lending schemes that will provide all kinds of financial assistance to small-sector industries. One such institution is the Small Industries Development Bank of India (SIDBI) which aims to provide finance and help in the growth and development of the small-scale sector, which will build a strong network to address all needs of the sector.

Some of the well-known schemes supported by SIDBI are:

  • Micro Units Development and Refinance Agency Ltd. (MUDRA)

This scheme mainly aims at providing support to banks or financial institutions that will facilitate the availability of more funds for loans which are done by 3 main schemes:

  1. Sishu loan: upto Rs. 50,000
  2. Kishore loan: upto Rs. 5 lakhs
  3. Tarun loan: Rs. 10 lakhs

MUDRA ensures financial support and assists in other social services to small-scale sectors.

  • Technology Upgradation Fund Scheme for the Textile Industry (TUFS)

This scheme aims to provide upgradation and modernization to the textile industry by making loans available for both new and existing small-scale textile industries.

  • Credit Linked Capital Subsidy Scheme (CLCSS)

SIDBI and NABARD are the head institutions that facilitate the process for loans under this scheme. It facilitates the upgradation of technology in specific products for small-scale industries.

  • Credit Guarantee Fund Scheme for Micro and Small Enterprises

Loans are given to new and existing small-scale industries in manufacturing or service units without collateral. However, some sectors like educational institutions, retail traders, and agricultural and self-help groups are excluded from taking loans under this scheme.

  • SIDBI Make in India Loan for Enterprises (SMILE)

The loans in this scheme are available for new and existing small-scale industries which are in the manufacturing or service sector. The minimum loan amount in this scheme is Rs. 25 lakhs, with a repayment tenure of up to 10 years.

The abovementioned are some of the many schemes that SIDBI supports, but there are other financial institutions set up by the government that provides financial assistance for the development of the small-scale sector all over the country.

  1. National Small Industries Corporation – This institution was started to provide machinery to small-scale firms, which they achieved by importing, supplying, and distributing raw materials and machines to them to facilitate the export of products.
  2. National Bank for Agriculture and Rural Development (NABARD) – NABARD was established to provide financial support for the development of agricultural-based small-scale industries like dairy farming, cottage industries, etc.
  3. Market Development Assistance Scheme for Medium and Small Scale Enterprises – This scheme provides small business loans for showcasing their products and services in major trade fair exhibitions for exposure in the global market. However, it has not been given enough support and funding from the government, so it has been left unexplored.

Eligibility Criteria To Avail Small Scale Industry Loans

The eligibility criteria provided by the government for small-scale loans vary depending on the lender, but some of the basic criteria are:

Age of ApplicantMust be between the age of 25 – 66 years
Status of BusinessNew or existing enterprises can avail of loans
Resident Status of ApplicantMust be a resident of India
Type of BusinessAll small industries in the trade, manufacturing, and service sector are eligible for loans.

It is important to understand the requirements and criteria of the institution or scheme before applying for a loan, as it differs from lender to institution. Some important documents are required, and the necessary paperwork needs to be done for the application for loans. 

The documents required for the application for a loan are: 

  • Application form
  • KYC documentation
  • PAN card
  • Financials (tax audit reports, balance sheet, etc.)
  • Address proof
  • Bank statements
  • Photographs

How to apply for Small Scale Industry Loans?

Applicants can directly visit financial providers or banks where they will be guided and informed about the loan application process and procedures for taking a loan. Some institutions or lenders have online websites where the application for loans can be processed. For example, Lendingkart is a loan provider where applications for loans can be made online through the official website by filling out application forms, uploading necessary documents, and submitting them. After the application process, the relevant bank is notified about the loan, and the loan amount is credited to the applicant’s bank account within a few days.

Ramp Scheme FAQs:

1. In what way can I pay for small scale business loans?

There are many possible ways to repay a business loan: post-dated cheques, electronic clearing services, direct debit etc.

2. How much is the EMI for business loans?

The EMI rate purely depends on the amount of loan taken. The rate of EMI also depends on the repayment tenure, interest rate etc., which can be calculated depending on the loan amount.

3. Can I apply for a business loan under the MUDRA scheme to start a small scale business?

Yes, it is possible to apply for a small scale loan under the MUDRA scheme, where loans are provided in the range of Rs. 50,000 – Rs. 10 lakhs, depending on the nature of the business and some other factors.

4. What is the maximum loan amount offered for a small business loan?

The maximum amount offered for a small business loan is up to Rs. 5 crore, which depends on the lender, nature of business etc.

5. Do I need collateral to avail government loans for small scale businesses?

No, there is no need for any collateral or security to be provided for availing government loans for small scale businesses.

6. How is the loan eligibility calculated for a business loan?

Loan eligibility depends on factors like: The credit score of applicant or entity, Ability to service EMI, Previous years financials

7. Is part payment allowed in small scale business loans?

Yes, part-payment is allowed in small business loans, but there may be a few restrictions like how many times there can be part-payment in a year or the maximum amount to part pay etc.

8. What are the documents required for a small scale business loan?

Some of the documents required for a small business loan application are: Application form, KYC documentation, PAN card, Financials (tax audit reports, balance sheet etc.), Address proof, Bank statements, Photographs.

9. Can the credit limit of my business loan be increased?

Yes, it is possible to extend the limit of credit for a loan, but it is subjected to eligibility criteria at the time of the request, depending on the institution or bank.

10. What are the charges I incur during loan processing?

The extra charges or fees incurred by the applicant depending on the institution or loan provider. Some of the charges are: Interest rate, Processing fee, Document processing charges, Foreclosure charge (if any), Part-payment charges (if any).

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