Start-ups are currently on a major rise through the country, though only about 5% of them have access to formal credit options to fund their ventures. While private funding organisations have come into play, the government of India has taken the major initiative to introduce start up business loans to aid in such ventures.
In a move to boost the capitalist setup; Ministry of Micro, Small and Medium Enterprises (MSME) along with the Indian government has rolled out many schemes that cater to a range of business enterprises. One of the most well-received schemes is the 59-minute loan platform that provides easy and swift access to credit for start-ups.
The Small Industries Bank of India (SIDBI), in an ingenious move, has begun lending MSME loan for new businesses directly. While the past method of lending through banks made it a drawn-out process, this initiative is swift and offers a least of 300 basis points lower than that of banks, along with online long-term loans for up to 5 years.
Venturing in the domain of loans for MSMEs and their benefits, a detailed introduction on the financing options available is vital to make the most suitable choice. The perks and downsides of the start-up business loans available are tricky and both the government as well as private business organisations present many choices in this front.
End to End Energy Efficiency (4E)
A marvellous initiative spearheaded by SIDBI, it was launched by India SME Technologies Service Ltd. (ISTSL) in collaboration with the World Bank. The scheme primarily focuses on introducing energy efficiency measures across industries in India extensively.
The loans available under this scheme attempt to fund a portion of the cost of investments like that of equipment, installation, civil works, commissioning etc. These MSME loan for new businesses even cover related expenses as long as that expenditure does not rise to more than 50% of capital expenditure.
Including the initial moratorium period, the loans have two segments of repayment tenure. For business start-ups requiring funding up to Rs. 1 Crore, the period of repayment is 36 months, while those exceeding that funding amount get 60 months to complete their repayment.
Bank Credit Facilitation Scheme
National Small Industries Corporation recently launched Bank Credit Facilitation Scheme which targets at filling the credit requirements of MSMEs. They have agreed with nationalised as well as private sector banks, and via syndication aims at providing credit support, fund or non-fund based limits both. The repayment period can vary within 5 to 7 years, though exceptional cases can have it extended to 11 years.
Credit Guarantee Scheme (CGS)
CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) has brought in CGS in an attempt to fill the void of start-up business loans. Apart from MSMEs dealing in retail trade, agriculture, educational and training institutions, self-help groups and their likes; MSMEs dealing with service providing and manufacturing are eligible for this scheme.
Irrespective of whether new or existing, MSMEs get term loans along with working capital loan extending up to Rs. 2 Crore. Term or composite loans have a period commencing from the date of payment of guarantee fee extending through the term credit tenure. In the case of working capital facilities individually extended to the recipients, a term period of 5 years or that agreed by guarantee trust is in effect.
Credit Linked Capital Subsidy for Technology Upgrades
The office of the Development Commissioner, Ministry of MSMEs, launched the subsidy initiative for existing MSMEs. To be eligible for this scheme, an existing start-up needs to have upgraded their facilities to one of state of art-grade, irrespective of expansion.
The prime objective of this loan is to ensure that the MSMEs upgrade their technology and to facilitate the same, capital is provided upfront. The business loan caps have been recently raised from Rs. 40 Lakh to Rs. 1 Crore along with a revised subsidy rate of 15%.
The government has introduced many more schemes to aid MSMEs and a detailed study of the same is necessary before venturing into the same. Business loans can also provide the necessary finances to help meet such requirements.
