4 government schemes that offer funding of up to Rs 2 crore to MSMEs
Small businesses and MSMEs (micro, small and medium enterprises) form the backbone of India's economy and may hold the key to solving the country’s unemployment crisis. The MSME sector in India employs over 100 million people and accounts for 45 percent of manufacturing output and more than 40 percent of the country’s exports.
To sustain operations and eventually expand, small businesses require sufficient funding in the form of large amounts of capital. However, the sector is facing a working capital crunch and a lack of access to affordable capital. This challenge has further increased in the wake of the COVID-19 pandemic which led to supply chain disruptions and discrepancies caused in the credit cycle.
SMBStory has drawn up a list of four important government schemes that entrepreneurs can avail to fund their small businesses and MSMEs.
Launched in October 2000, the scheme aims to boost the competitiveness of MSMEs by integrating ongoing technology upgradation efforts with the Credit Linked Capital Subsidy Scheme (CLCSS), hand-holding zero defect zero effect manufacturing (ZED), increasing productivity through waste reduction, design intervention, cloud computing, facilitation of intellectual property, and nurturing new ideas.
The scheme provides an upfront capital subsidy of 15 percent to MSEs, including tiny, khadi, village, and coir industrial units, on institutional finance of up to Rs 1 crore availed by them, for induction of well-established and improved technology in the approved 51 sub-sectors/products.
Special provisions have been made in this scheme to promote entrepreneurship for SC/STs and women-led SMEs, and focusing on hill states such as Jammu and Kashmir, Himachal Pradesh, and Uttarakhand, and island territories such as Andaman and Nicobar Islands and Lakshadweep, and aspirational districts.
To claim subsidy under the scheme, eligible MSEs are required to apply online through Primary Lending Institutions (PLIs), from where they avail term loans.
The completed application is uploaded by the PLI to the attached nodal agency which, in turn, recommends the application online to Office of DC (MSME) for release of subsidy.
After processing of application and subject to availability of funds, due approval is accorded from the competent authority with concurrence of the internal finance wing. After this, funds are released to nodal agencies, which transfer the funds to PLIs where the account of the MSE is operated.
Jointly established by the MSME Ministry, Government of India, and Small Industries Development Bank of India (SIDBI), the scheme assures the lending institution that if a borrowing MSE unit fails to discharge its liabilities to the lender, the trust will make good the loss incurred by the lender up to a certain percent of the credit facility.
Under the scheme, collateral-free credit (fund and non-fund-based) extended by eligible financial institutions to new and existing micro and small enterprises, up to a limit of Rs 200 lakh (Rs 2 crore), is eligible to be covered by the fund trust.
Guarantee coverage is available under the scheme to the extent of 85 percent for micro enterprises for credit up to Rs 5 lakh. The guarantee cover is 50 percent of the sanctioned amount for credit ranging from Rs 10 lakh to Rs 100 lakh per MSE borrower for retail trade activity.
The extent of guarantee cover is 80 percent for MSEs operated and/or owned by women. The guarantee is also applicable on all credit/loans in the North East Region (NER) for credit facilities up to Rs 50 lakh.
Candidates meeting the eligibility criteria may approach eligible banks, financial institutions, or select regional rural banks to apply for loans under CGTSME.
Through setting up small businesses, the scheme aims to generate a steady stream of employment opportunities in various areas of the country. Another objective is facilitating financial institutions to lend more to the micro sector.
Any individual, above 18 years of age, can avail of the scheme. The person should be at least an eighth standard pass for projects costing above Rs 10 lakh in the manufacturing sector and above Rs 5 lakh in the business/service sector.
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. The rate of subsidy (in percentage of project cost) in the general category is 15 percent in urban areas and 25 percent in rural areas.
In special categories such as SC/ST/OBC/minorities/women, ex-servicemen, physically handicapped, NER, hill, and border areas, the rate is 25 percent in urban areas and 35 percent in rural areas. The balance amount of the total project cost is provided by banks in the form of term loan and working capital.
The State/Divisional Directors of KVIC, in consultation with KVIB and Director of Industries of respective states (for DICs) 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.
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 it to the respective offices along with a detailed project report and other required documents.
Pradhan Mantri Mudra Yojna
This scheme was launched in 2015 by Prime Minister Narendra Modi with a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore. This scheme consists of three main products, including:
Shishu: covering loans up to Rs 50,000
Kishor: covering loans above Rs 50,000 and up to Rs 5 lakh
Tarun: covering loans above Rs 5 lakh and up to Rs 10 lakh
Who can apply?
Businesses/entrepreneurs/units in rural or urban areas with financing requirements up to Rs10 lakh.
How to apply?
Eligible individuals and institutions can send their applications to the Nodal Officer of the respective regions. More details can be found at https://www.mudra.org.in/AboutUs/Vision.