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Top 8 Government Business Loan Schemes for MSMEs

Disclaimer: This blog is written for generic information only. Ujjivan Small Finance Bank is not responsible for the accuracy of the information mentioned herein. Please click 'Apply Now' to explore our MSME Loan products.

July 21, 2025

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Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India's economy, contributing around 30% to the GDP and employing over 11 crore people. Their growth is pivotal for India's economic development. However, access to credit remains a major hurdle. In response, the Government of India has launched various schemes to provide financial support, especially after disruptions like COVID-19. Let’s explore these MSME loan schemes, their eligibility, and the benefits they offer.

Major Government-Sponsored MSME Loan Schemes

1. Pradhan Mantri Mudra Yojana (PMMY)

Launched in 2015, this scheme provides loans up to ₹10 lakh to non-corporate, non-farm small enterprises. The scheme operates under three categories:

Shishu: Up to ₹50,000
Kishore: ₹50,001 to ₹5 lakh
Tarun: ₹5 lakh to ₹10 lakh

These loans fall under and classified as MUDRA loans. MUDRA stands for Micro Units Development and Refinance Agency Ltd. It was established by the Government of India in 2015 under the Pradhan Mantri Mudra Yojana (PMMY) to provide financial support to non-corporate, non-farm small/micro enterprises. MUDRA primarily refinances microloans provided by banks, Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), and other lending institutions to foster entrepreneurship and boost the micro-enterprise sector.

Loans are provided through banks, small finance banks, NBFCs, and MFIs, with a focus on startups and small businesses, especially in rural areas. The loans can be applied through the UdyamiMitra portal.

2. Prime Minister’s Employment Generation Programme (PMEGP)

A merger of the Prime Minister’s Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP), this scheme aims at promoting self-employment among the youth and traditional artisans.

Loan Cap: ₹25 lakh for manufacturing and ₹10 lakh for services.
Subsidy: 15% to 35%, varying by location and category (urban/rural, general/special).

Eligibility extends to individuals above 18 years, including SHGs, production cooperatives, and charitable trusts.

3. Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE)

Established by the Ministry of MSME and SIDBI, this scheme provides collateral-free loans up to ₹2 crore.

Coverage: 85% for loans up to ₹5 lakh, 75% for others, and 50% for retail trade.

This scheme helps MSMEs secure funding without third-party guarantees, facilitating faster access to credit.

4. Credit Linked Capital Subsidy Scheme (CLCSS)

Focused on technology upgradation, CLCSS provides a 15% capital subsidy for loans up to ₹1 crore for purchasing modern equipment.

Eligible Sectors: Manufacturing units looking to adopt state-of-the-art technology.

This scheme helps MSMEs enhance productivity and competitiveness.

5. Equity Infusion through Fund of Funds

To address the equity shortage in MSMEs, this scheme offers equity funding through venture capital and private equity.

Fund Size: ₹50,000 crore.
Purpose: To help MSMEs with growth potential get listed on stock exchanges and attract private investments.

6. Credit Guarantee Scheme for Subordinate Debt (CGSSD)

Launched to support stressed or NPA MSMEs, this scheme provides subordinate debt funding to promoters of stressed MSMEs.

Loan Limit: 15% of promoters’ equity or ₹75 lakh (whichever is lower).
Repayment: 10 years with a 7-year moratorium on principal repayment.

7. SIDBI Make in India Loan for Enterprises (SMILE)

This scheme supports MSMEs under the ‘Make in India’ initiative by offering soft loans for modernization and expansion.

Loan Size: Minimum ₹10 lakh for equipment and ₹25 lakh for others.
Repayment: Up to 10 years with a 3-year moratorium.

It aims to boost smaller enterprises in both the manufacturing and service sectors.

8. MSME Business Loan for Startups in 59 Minutes

This scheme automates and digitizes the loan approval process, providing loans in principle within 59 minutes.

Loan Amount: ₹1 lakh to ₹5 crore.
Interest Rate: Starts at 8.5%.

Businesses must be IT-compliant and GST-registered (optional for certain loans). The process is fully online, ensuring quicker disbursements.

Final Thoughts

Government schemes for MSME loans provide financial support to MSMEs in India. We have discussed the top 8 government schemes for those who want MSME loan benefits, each addressing different needs of entrepreneurs in various sectors. By taking advantage of these schemes, you can access loans without collateral, receive credit guarantees, upgrade your technology, and start new businesses.

Take your business to the next level with Ujjivan Small Finance Bank MSME Loans. We have a host of MSME products tailored for your unique business growth needs. Additionally, we offer MSME Overdraft facilities for urgent business capital requirement. Browse through our suite of products and apply today!

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FAQs

1. What is the primary objective of MSME loan schemes offered by the Government of India?

The primary objective is to provide financial support to micro, small, and medium enterprises to promote entrepreneurship, enhance economic growth, and generate employment. These schemes aim to address the funding gap faced by MSMEs, offering collateral-free loans, subsidies for technology upgrades, and equity support for business expansion.

2. Are startups eligible for MSME loan schemes in India?

Yes, many government schemes cater specifically to startups. For instance, the MSME Business Loan in 59 Minutes offers quick loans to startups and existing businesses, while schemes like PMEGP and Pradhan Mantri Mudra Yojana support new ventures with minimal initial capital requirements.

3. What types of businesses qualify as MSMEs for these loan schemes?

MSMEs are classified based on their investment in plant, machinery, and equipment or their annual turnover. Micro enterprises have investments up to ₹1 crore or turnover up to ₹5 crore, small enterprises up to ₹10 crore in investment or ₹50 crore in turnover, and medium enterprises up to ₹50 crore in investment or ₹250 crore in turnover. Both manufacturing and service sectors are eligible.

4. Do MSME loans require collateral?

Not all MSME loans require collateral. For example, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offers collateral-free loans up to ₹2 crore, ensuring that even businesses without substantial assets can access funding. Similarly, Mudra loans under PMMY are also collateral-free.

5. How can MSMEs apply for government-sponsored loans?

MSMEs can apply through various channels such as banks, NBFCs, and online portals like Udyami Mitra. The MSME Business Loan in 59 Minutes portal simplifies the process by offering automated approvals. Applicants typically need to provide business registration documents, financial statements, and tax filings.

6. Are there any specific loan schemes for technology upgradation?

Yes, the Credit Linked Capital Subsidy Scheme (CLCSS) offers a 15% subsidy for MSMEs investing in advanced technology. This scheme encourages businesses to adopt modern machinery and improve productivity, thereby enhancing their competitiveness in both domestic and international markets.

7. What is the repayment period for MSME loans?

The repayment period varies depending on the scheme. For instance, loans under SIDBI’s SMILE scheme have a repayment tenure of up to 10 years, including a moratorium period of up to 3 years. Similarly, other schemes like CGSSD also offer flexible repayment options with extended tenures to support stressed businesses.

Top 8 Government Business Loan Schemes for MSMEs