Resource Centre for MSMEs: All you need to know about funding your enterprise

Thursday January 17, 2019 , 18 min Read

Access to finance is the biggest challenge faced by MSMEs in India. For every 100 companies in India, there are more than 95 micro enterprises, four small-to-medium businesses, and less than one large company, according to Dun & Bradstreet Research. This is because only four percent of MSMEs in India have access to a formal source of finance. They find it challenging to scale up.

Government bodies and financial institutions in India are working hard to solve this. If you are an entrepreneur, look no further than this one-stop-shop for financial schemes by the government. It also includes schemes launched by various public and private banks to make credit easy for small businesses.

Do tell us what resources you are looking for to scale your business? Click here.

Read on to learn how you can access them.

Government schemes:

Prime Minister Employment Generation Programme (PMEGP)

The scheme is implemented by Khadi and Village Industries Commission (KVIC) functioning as the nodal agency at the national level. At the state level, the scheme is implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centres (DICs) and banks. In such cases, KVIC routes government subsidy through designated banks for eventual disbursal to the beneficiaries / entrepreneurs directly into their bank accounts.

Nature of assistance

The maximum cost of the project/unit admissible in the manufacturing sector is Rs 25 lakh and in the business/service sector, it is Rs 10 lakh.

Categories of Beneficiary’s Rate of subsidy under PMEGP (of project cost)

Area (location of project/unit):

General category - 15 percent (urban), 25 percent (rural)

Special category - 25 percent (urban), 35 percent (rural)

(including SC/ST/OBC/minorities/women, ex-servicemen, physically handicapped, NER, Hill, and Border areas, etc.)

The balance amount of the total project cost will be provided by the banks in the form of a term loan and working capital.

Who can apply?

Any individual, above 18 years of age.

At least eight standard pass for projects costing above Rs 10 lakh in the manufacturing sector and above Rs 5 lakh in the business/service sector.

Only new projects are considered for sanction under PMEGP.

Self Help Groups (including those belonging to BPL provided that they have not availed benefits under any other Scheme), Institutions registered under Societies Registration Act, 1860; Production Co-operative Societies, and Charitable Trusts are also eligible.

Existing Units (under PMRY, REGP or any other scheme of Government of India or State Government) and the units that have already availed Government Subsidy under any other scheme of Government of India or State Government are NOT eligible.

How to apply?

The State/Divisional Directors of KVIC in consultation with KVIB and Director of Industries of respective states (for DICs) will give advertisements locally through print and electronic media inviting applications along with project proposals from prospective beneficiaries desirous of establishing the enterprise/ starting of service units under PMEGP.

The beneficiaries can also submit their application online at https://www.kviconline.gov.in/pmegpeportal/pmegphome/index.jsp and take the printout of the application and submit the same to respective offices along with Detailed Project Report and other required documents.

Whom to contact

State Director, KVIC

Address available at http://www.kviconline.gov.in

Dy. CEO (PMEGP), KVIC, Mumbai

Ph: 022-26711017

Email: ykbaramatikar[dot]kvic[at]gov[dot]in

(For scheme guidelines, click here)

Performance and Credit Rating Scheme

The purpose of rating scheme is to provide a trusted third party opinion on the capabilities and creditworthiness of the micro and small enterprises (MSEs) so as to create awareness amongst MSEs about the strengths and weakness of their existing operations. This provides them an opportunity to improve and enhance their organisational strengths and creditworthiness, so that they can access credit at cheaper rates and on easy terms.

It also facilitates them in increasing their acceptability from customers/buyers and vendors. Rating under the scheme is a combination of credit and performance factors. Rating symbols are standardised and followed uniformly by all rating agencies.

Nature of assistance

Rating fee payable by the MSEs is subsidised by the Government to the extent of 75 percent, subject to a ceiling of Rs 1,500, Rs 30,000 or Rs 40,000 based on the turnover of the unit, for the first year of rating.

Who can apply?

Micro and Small Enterprises

How to apply?

Rating is carried out through accredited rating agencies empaneled under the scheme. MSEs have the liberty to choose any of the empaneled rating agencies. Any unit seeking rating under the scheme may apply in the application form (may be downloaded from the website of Ministry of MSME, NSIC, Office of DC-MSME and the rating agencies) along with prescribed documents and its share of rating fee directly to the selected rating agency.

Whom to contact

General Manager-SG (Finance), NSIC

Ph: 011-26920920

Email: pcrs[at]nsic[dot]co[dot]in

(For more details under the PMEGP, click here)

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

Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI) jointly established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in order to implement Credit Guarantee Scheme for Micro and Small Enterprises. The corpus of CGTMSE is contributed by Government of India and SIDBI. 75 percent of the loan amount to the bank is guaranteed by the Trust Fund.

Nature of assistance

Collateral free loan up to a limit of Rs 100 lakh is available for individual MSEs on payment of guarantee fee tothe bank by the MSE.

Who can apply?

Both existing and new enterprises are eligible under the scheme.

How to apply?

Candidates meeting the eligibility criteria may approach banks/financial institutions, and select regional rural banks which are eligible under the scheme.

Web links are www.dcmsme.gov.in/schemes/sccrguarn.htm

Whom to contact

1) CEO, CGT SME

Ph: 022-61437805

Email: pradeepm[at]cgtmse[dot]in

2) ADC, O/o DC, MSME

Ph: 011-23062241

Email : arun_kumar[at]nic[dot]in

(For scheme guidelines, click here)

Interest Subsidy Eligibility Certificate (ISEC)

The Interest Subsidy Eligibility Certificate (ISEC) Scheme is an important mechanism of funding khadi programmes undertaken by khadi institutions. It was introduced to mobilise funds from banking institutions for filling the gap between the actual fund requirements and availability of funds from budgetary sources.

Nature of assistance

Under the ISEC Scheme, credit at a concessional rate of interest of four percent per annum for working capital is made available as per the requirement of the institutions. The difference between the actual lending rate and four percent is paid by the Central Government through KVIC to the lending banks.

Who can apply?

The khadi institutions, having valid khadi certificate and sanctioned khadi programme. The Institutions registered with the KVIC/State Khadi and Village Industries Boards (KVIBs) can avail of financing under the ISEC Scheme. The scheme supports only the khadi and the polyvastra sector.

How to apply?

The Khadi institutions will apply to the financing bank for working capital along with the ISEC certificate issued by KVIC. Based on the working capital sanctioned, financing bank will raise the reimbursement claim to the nodal branch for the differential interest rate over and above four percent..

Whom to contact

Dy. CEO, KVIC

Ph: 022-26710021

Email: kvicecr[at]gmail[dot]com

(For scheme guidelines, click here)

Technology Upgradation and Quality Certification

A Scheme for promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)

The main objectives of the scheme are to:

(i) Create new jobs and reduce unemployment (ii) Promote entrepreneurship culture in India (iii) Boost grassroots economic development at district level (iv) Facilitate innovative business solution for unmet social needs and (v) Promote innovation to further strengthen the competitiveness of the MSME sector.

Nature of assistance

NSIC/KVIC or Coir Board or any Central or State Government agency were to set up 80 Livelihood Business Incubators for the period 2014 to 2016. The objectives were: Promotion of Innovation, Entrepreneurship and Agro-Industry organisation of the M/o MSME, and one-time grant of 100 percent of cost of Plant and Machinery, other than the land and infrastructure, or an amount up to Rs 100 lakh, whichever is less, is to be provided.

In case of incubation centres to be set up under PPP mode with NSIC, KVIC or Coir Board, or any other Institution/agency of GoI/State Government, a one-time grant of 50 percent of cost of Plant and Machinery, other than the land and infrastructure, or Rs 50 lakh, whichever is less, is to be provided.

Assistance towards the training cost of incubates will be met out of the ATI scheme of the Ministry as far as possible for both centres. The total budget plan was Rs 62.5 crore for 2014-2016.

Who can apply?

The Scheme aims to implement the Incubation and Commercialisation of Business Ideas Programme through technical/research institutes, including those in the field of agro-based industry. These would be designated as Knowledge Partners and would incubate new/existing technologies for their commercialisation.

The scheme also provides funds for the incubator/incubation and creates necessary synergy between this scheme and the Livelihood Business Incubators/Technology Business Incubators and Incubation schemes of MSME / NSIC / KVIC / Coir Board / Other Ministries/Departments as well as private incubators.

How to apply?

The application can be sent to Aspire Scheme Steering Committee of the Ministry of MSME. The Scheme Steering Committee will be responsible for overall policy, coordination, and management support. The Council will be chaired by Secretary, Ministry of MSME.

Whom to contact?

Deputy Secretary (ARI), M/o MSME

Ph: 011-23062745,

Email: samar[dot]nanda[at]nic[dot]in

(For more details under this scheme, click here)

Small Industries Development Bank of India (SIDBI)

SIDBI’s customised schemes are designed to meet the specific needs of MSME’s across sectors, and at different growth stages. The financial support to MSMEs is provided through::

Institutional Finance to eligible Primary Lending Institutions (PLIs), such as banks, Non-Banking Financial Corporations (NBFCs) and Micro Finance Institutions (MFIs) for onward lending to MSMEs and

Direct finance with focus on ‘Make in India’ through its Pan India branch network, and

Promotion and Development of Micro finance institutions in general and MSEs in particular

The specific schemes under which loans can be availed are:

Working Capital Assistance to MSMEs Objective

Secured Business Loans for MSMEs (SBL)

Inland Letter of Credit (INLC)

Guarantee Schemes for MSEs

General Purpose Term Loan

SMILE (soft loans in the nature of quasi-equity)

Receivable Finance Scheme

Service Sector Financing

Financing Schemes for Sustainable Development

Government Loan Schemes:

Technology Upgradation Fund Scheme for The Textile Industries (TUFS)

Credit Linked Capital Subsidy Scheme (CLCSS)

Technology and Quality upgradation Support to Micro , Small & Medium Enterprises (TEQUP)

Click here for more information

Private and Public Bank schemes

Bank of Baroda

Bank of Baroda has schemes for all commercial enterprises, including those outside the regulatory definition of SME but having a turnover up to Rs 150 crore, as well as new infrastructure and real estate projects where the project cost is up to Rs 50 crore. The bank treats them as part of SME segment.

Schemes offered:

1. Baroda SME Loan Pack:

It provides single line of credit for meeting SME borrowers’ working capital as well as long term requirements within the overall limit approved by the bank.

Purpose

To provide hassle free credit for working capital (fund based and non-fund based) and also long term requirements, taking into account nature of business, cyclical trends, cash flow projections, peak time requirements and any eventuality of unforeseen spurt in the business.

Eligibility

All enterprises, i.e. Micro, Small & Medium Enterprises, as defined under MSMED Act, 2006, and other entities with annual sales turnover up to Rs 150 crore exclusively banking with the bank or new borrowers desirous of having sole banking arrangement with them.

Composite Limit

The limit is 4.5 times of borrower tangible net worth as per last audited Balance Sheet, or, Rs 5 crore,, whichever is lower.

Margin: 25 percent

Interest rate: As per credit rating of borrower

Click here for more information

2. MSME capex loan

Purpose

The loan to be considered for the following capital expenditure related with the regular business activity

Replacement of old machinery

Purchase of balancing equipments

Modernisation

Investment in Research and Development.

Installation of captive power plants and Upgradation of technology.

Alteration in lay out of factory/office.

Acquisition of software, hardware, and tools, jigs, fixtures etc. forming part of Plant & Machinery.

Purchase of cars, passenger cars for staff and other vehicles for use of business purpose.

Limit

The limit is 15 percent of Plant and Machinery for manufacturing MSMEs and 25 percent for the services sector outstanding as per last Audited Balance Sheet, or ten percent of the working capital, whichever is higher based on DSCR and subject to cap:

Baroda MSME Capex card: Minimum Rs 25 lakh and maximum Rs 5 crore

Baroda MSME Capex Loan: Minimum Rs 25 lakh and maximum Rs 2 crore.

Average Gross DSCR inclusive of the repayment liability under the proposed STL should not be less than 1.75. In any year, it should not be less than one for MSE Borrowers and 1.25 for Medium and SME Expanded Borrowers.

The facility to be made available as Fund Based / or Non-Fund Based Limits (i.e. including establishment of LCs) ensuring that aggregate exposure does not exceed the overall limit.

Baroda MSME Capex Card: minimum Rs 25 lakh and maximum Rs. 5 crore. Term Loan Stand-by limit approved at the time of sanction/ renewal of facilities and disbursed when required without re-submission of financials.

Baroda MSME Capex Loan: Minimum Rs 25 lakh and maximum Rs 2 crore. In cases where no such Standby limit has been assessed and sanctioned by competent authority, emergent capex needs may be financed under this scheme.

Margin

Land & Building - 30 percent

Plant & Machinery - 25 percent

Interest rate: As per credit rating

Click here for more information

3. SME Short Term Loan

Purpose

To meet temporary shortfall / mismatch in liquidity, for meeting genuine business requirements only.

Enterprises Group

Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover up to Rs 150 crore.

Eligibility Criteria

Satisfactory credit rating for the last three years.(BOB-5 & ABOVE)

Latest Balance Sheet etc. should be available.

Satisfactory financial performance in terms of sales / turnover and profits. Negative variance, if any, should not be more than ten percent

Satisfactory dealings with the Bank for at least three years.

Loan Amount

Upto 25 percent of the existing Fund-based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs 10 lakh and maximum of Rs 250 lakh.

Repayment Period

To be repaid in 12 months including moratorium period.

Security

First charge / Equitable mortgage of fixed assets of the company / firm or extension of existing first charge / equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25.

Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available.

Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.

Interest rate: As applicable to existing working capital facilities.

Click here for more information

4. SME medium term loan

Purpose

To augment enterprises’ working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions, but not for purposes unrelated to the enterprises’ activity.

Enterprises Group

Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs 1 crore to Rs 150 crore.

Eligibility Criteria

Satisfactory credit rating for the last three years

Latest Balance Sheet etc. should be available.

Satisfactory financial performance in terms of Sales/turnover and profits. Negative variance, if any, should not be more than ten percent.

Total Debt-equity ratio should not be higher than 4.5:1 and total Term Liability and equity ratio should not be more than 3:1.

Average DSCR should not be less than 1.75:1

Satisfactory dealings with the Bank for at least three years.

Loan Amount

Upto 25 percent of the existing fund-based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs 25 lakh and maximum of Rs 500 lakh.

Repayment Period

Not exceeding 36 months; to be repaid in equal quarterly or half-yearly installments.

Security

First charge/Equitable mortgage of fixed assets of the Company/firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25

Interest rate: As per credit rating for the additional loan, Prepayment penalty of one percent, if loan is prepaid within 24 months of drawdown

Processing Charges/Upfront Fee: 25 percent concession in applicable charges.

Click here for more information

Corporation Bank

Corporation Bank provides a comprehensive range of innovative and business friendly banking products and services for MSME Entrepreneurs through its branches across the country.

They fall under:

Corp SME Tex Plus Scheme

Corp SME Auto Plus Scheme

Corp Gold Card Scheme

Corp SME Credit Card Receivable Funding Scheme

Corp SME Receivable Funding

Corp SME Term Plus Scheme

Corp SME Liquid Plus Scheme

Corp Collateral Free Loan Scheme under CGTMSE

Corp Commercial Vehicle Loan Scheme

Corp Artisans Credit Card

Corp Weavers Credit Card

Credit Linked Capital Subsidy Scheme (CLCSS)

Technology Upgradation Fund Scheme (TUFS)

Corp Timber Traders Loan

Prime Minister’s Employment Generation Programme (PMEGP)

Corp Vanitha Udyog Scheme (CVUS)

Corp Gold Business Loan

Click here for more information

State Bank of India (SBI)

SBI has a range of products designed to meet the needs of its SME customers across sectors like manufacturing, services, trading etc. Its products are:

SME eBiz Loan

Simplified Small Business Loan

Stand Up India

SME Smart Score

SME Credit Card

Doctor Plus

Medical Equipment Finance

e Dealer Finance Scheme

e Vendor Finance Scheme

ABL & ABL CRE

Fleet Finance

PM Mudra Yojana

Export Packing Credit

Lease Rental Discounting

Open term Loan

Warehouse Receipt Finance

Click here for more information

YES Bank

YES Bank provides loans to SMEs under four programmes

1.YES Samriddhi

Maximum Loan Amount: Rs 4 crore , Non DP Linked OD up to Rs 2 crore

Fund Based: Cash Credit, Overdraft, Working Capital Demand Loan , Term Loan, Drop Line OD, Export Credit

Non – Fund Based: Letter of Credit, Buyers Credit, Bank Guarantee

Trade Related Facility: CMS Limits and Forward Cover

Parameterised template based fast track sanction with local credit delegation

Loan against Residential/ Commercial/ Industrial/ NA Plot

Click here for more information

2.YES Suyog

Scorecard Based Appraisal model

Fund Based : Cash Credit, Overdraft, Working Capital Demand Loan, Term Loan, Drop Line OD, Export Credit

Non – Fund Based: Letter of Credit, Buyers Credit, Bank Guarantee

Trade Related Facility: CMS Limits and Forward Cover

Maximum Loan Amount: Rs 2 crore

Residential/ Commercial/ Industrial/ NA Plot/ SLBC/BG/FD /Surrender Value of LIC

Click here for more information

3.Smart overdraft

Available to Business as well as Self Employed Individuals like Doctors/Engineers/CA/Architect

Fund Based Limits (Overdraft & Drop Line Overdraft)

Minimum Loan Amount: Rs 20 lakh

Maximum Loan Amount: Rs 1 crore

Parameterised template based product for faster approvals

Loan Against Residential/ Commercial/ NA Plot

SLBC/BG/FD /Surrender Value of LIC

Click here for more information

4.Cash-Backed Lending Program

Non – Fund Based Letter of Credit, Buyers Credit, Bank Guarantee

Letter Of Credit: 180 days /upto three years in case of Supplier’s Credit LC

Bank Guarantee: 36 months (including claim Period)

Letter Of Undertaking: upto one year period for arranging BC for non capital goods and upto three years for arranging BC for Capital Goods

Click here for more information

HDFC Bank

HDFC Bank offers financial assistance to SMEs through working capital loans, business loans, and term loans.

Working Capital Loans

The bank offers priority processing for SME working capital requirements through a dedicated relationship manager and doorstep service under:

Cash Credit / Overdraft

Term Loan (TL)

Letter of Credit (LC)

Bank Guarantee (BG)

Packing Credit (PC)

Post Shipment Finance

Bill Discounting

Click here for more information

Business Loans

The bank’s business loan features include loans of up to Rs 50 lakh, waiver of collateral or guarantor, and even the benefit of business loan balance transfer. In addition, it offers special benefits on business loans, such as overdraft facility and flexible tenure options.

Click here for more information

Term Loans

Term Loans are offered to businesses up to a tenure of five years for their expansion, capital expenditure and for fixed assets. HDFC Bank also offers Short Term Finance options that are structured to meet SME’s individual needs. The bank will schedule repayments to match the business’ available cash flow.

Click here for more information