Business loans are often taken by small startups or firms for business strategies and purposes. There is always an option of two types of sectors from which an individual can borrow loans for their business be it a small business or a startup, 

• Government loan schemes or sectors (banks)
• Private sector (banks)

Government loan schemes for businesses or sectors are the better options for getting a loan for your businesses over the private sector because of the 5 foremost reasons detailed below-

• Processing charges are low on the loans in the Government banks

Processing charges are low on loans in the government banks. Like any bank authorised under the Government is charging a business loan processing fee of like 0.30 per cent on loans up to Rs 25-30 lakhs (approximately). On the other hand, if your business loan is between Rs 30 to Rs 70 lakhs the amount that is to be charged is something between Rs.6000 to Rs.8000.

• Interest rates are low

The interest rates are lower in the case of Government loan schemes for businesses or banks than in the private sector (banks). Therefore, it becomes easy for a person to pay back the business loan smoothly because of the low-interest rates.

• Quick approval of business loans

The business loan that you apply for gets a quick and fast approval and the processing for the loan is also fast in the case of the Government loan scheme. So you can say that under the Government schemes or banks the process of loan approval is quick.

• Restrictions on prepayment

In some cases, the Government banks do not charge any type of prepayment charges so it can be said that when you take business loans from Government schemes or banks you do not have to take tension regarding anything. 

• Technological advancement

In this modern world, technologies are advancing day by day and many Government banks are providing digital loan processes for business loans. There are many Government banks that are following the technological procedure for different types of business loans with advanced technologies.

The Other Important Aspects Regarding Government Loan Schemes For Businesses

Types

Micro Units Development and Refinance Agency loan scheme

This loan scheme was established by the present government to fund the unfunded and small businesses & startups are provided with loans at a low-interest rate in the form of low-cost credits. This loan scheme is financed by the government and private banks, cooperative societies, rural banks, small banks, and scheduled commercial banks. MSME functioning in the trading, manufacturing and service sectors are eligible for this scheme. 

The amount that can be credited to the small businesses under this scheme is-

• Sishu loans- 50,000/-
• Tarun loans- 10,00,000/-
• Kishor loans- 5,00,000/-

Credit Guarantee Fund Government Business Loan Scheme

The Credit Guarantee Fund Trust for Micro and Small Enterprises has been in function for almost 18years and has been facilitating any MSMEs. Any commercial bank and a rural bank can be a part of this scheme by empanelling themselves as a leading authority. The agency or scheme sanctioned loans to any micro and small enterprises based on their eligibility criteria.

The amount that can be credited under this scheme-

• Up to 10,00,000/-

National Small Industries Corporation Subsidy 

Any business qualifying as an MSME is eligible for this Government business loan scheme if it has any of the two things EM Part-II or UAM.

Credit Link Capital Subsidy Scheme

This scheme sanctioned loans for the up-gradation of technologies. You can take this loan to enhance your equipment and technology. Different types of registered companies including sole proprietorship business, partnership firm, and private and public limited companies are eligible for this scheme. 

The amount under this scheme can range up to 15lakhs. 

Small Business Loan

Advantages

• Quick approval of the loan
• Documentation is less
• No collateral is required if searching for an unsecured business loan

Eligibility Criteria

• The borrower should be self-employed
• Must have attained the age of 21years
• The maximum age limit is 65years
• The borrower’s turnover should be 10,00,000 per year
• The borrower must be running the business for at least 3years and must possess 5years of business experience

Procedure

• Check the eligibility criteria
• Submit the required documents & application
• Wait for the approval

The above-mentioned criteria must be fulfilled by the borrower for getting the small business loan. In the case of a small business loan, the documents are fewer and the time for approving the loan is also short. Any person who is opting for a quick and hassle-free business loan can look for a small business loan.

MSME Loan

Micro, small, and medium-sized businesses (MSMEs) require finance to start and expand. To give financing to MSMEs, the Indian government has taken several initiatives and created numerous programmes. MSMEs provide a vital contribution to our country’s economic development. Access to financing is one of the most important components of MSMEs. MSMEs need loans or money to start a firm or expand an existing one.

The Indian government has devised a number of lending programmes to give credit to MSMEs, and the banking industry and financial firms also lend to them.

Amount

MSME loans are provided to Micro, Small, and Medium Enterprises (MSMEs) for the development of existing firms or the start-up of new businesses. MSME loans have interest rates that start at 7.65% per year. The loan amount approved might be as little as Rs.50,000 and as high as a few crores. The MSME loan payback period might be up to 15 years depending on the MSME loan amount approved.

Eligibility Criteria

• Types of Business– Service sector & manufacturing sector
• Size of business (manufacturing sector)-  Micro (less than 25 lakhs), Small (less than 5 crores), Medium ( less than 10 crores)
• Size of business (service sector)- Micro ( less than 10 lakhs), Small (less than 2 crores), Medium (less than 5 crores)

Documents required

• Identity Proof
• Residence Proof
• Business Address Proof
• Proof of Income
• Tax Records
• Proof of securities offered
• Other documents

Conclusion

Therefore from the above discussion that there are 3types of options available for a small business or startup to borrow loans under the umbrella of the three categories of loans, the first and foremost one is the Government Loan Scheme for Small Business, second is the Small Business Loan and third is the MSME Loan. Now it depends on the type of business and the eligibility of the borrower to decide from which of the three schemes he/she will apply for the business loan.