Small businesses play a crucial role in driving India’s economy, contributing significantly to employment and GDP. However, access to capital has always been a major hurdle for small entrepreneurs who are looking to expand, upgrade, or simply sustain their operations.
While private financing options like banks and venture capital are available, they often come with high-interest rates, collateral requirements, and complicated paperwork, making them inaccessible to many small businesses.
The Indian government, understanding the challenges faced by small businesses, has rolled out several loan schemes to promote entrepreneurship, boost economic growth, and empower small business owners.
These loan schemes are designed to offer financial support to businesses with minimal documentation, lower interest rates, and longer repayment terms.
In this blog post, we will explore the top 5 government loan schemes for small businesses in India in 2025, highlighting their features, eligibility, and benefits.
1. MUDRA Scheme (Micro Units Development and Refinance Agency)
The MUDRA Scheme was launched by the Government of India in 2015 to provide financial assistance to micro and small businesses. The scheme was designed to offer loans to non-corporate, non-farm small/micro enterprises to help them meet their working capital and expansion needs.
- Loan Categories:
The MUDRA loan scheme is categorized into three types:- Shishu: Loans up to ₹50,000 for small businesses in the early stages.
- Kishore: Loans between ₹50,001 and ₹5 lakh for businesses that have been operational for a while.
- Tarun: Loans between ₹5 lakh and ₹10 lakh for established businesses looking to expand.
- Interest Rate: The interest rate ranges from 8% to 12% depending on the business type and loan amount.
- Eligibility:
- Indian citizens engaged in manufacturing, trading, or service sectors.
- No requirement for collateral or third-party guarantee.
- Micro or small businesses that do not have access to formal credit sources.
- Benefits:
- Easy loan disbursal with minimal documentation.
- No processing fee or collateral requirements.
- Flexible repayment terms.
- Boosts the growth of micro-businesses and promotes financial inclusion.
- How to Apply:
Applications for MUDRA loans can be made through public and private sector banks, regional rural banks, and NBFCs. Interested business owners can apply online or visit the nearest branch for assistance.
2. Prime Minister’s Employment Generation Programme (PMEGP)
The PMEGP scheme is a credit-linked subsidy program launched by the Ministry of MSME (Micro, Small, and Medium Enterprises) to provide financial support to entrepreneurs in setting up small businesses.
This scheme aims to create job opportunities by facilitating the establishment of micro-enterprises in both rural and urban areas.
- Loan Amount:
- The maximum loan amount under PMEGP is ₹25 lakh for manufacturing businesses and ₹10 lakh for service businesses.
- Subsidy:
- The government provides a subsidy ranging from 15% to 35% on the total project cost, depending on the category of the applicant and the location of the business.
- Eligibility:
- Entrepreneurs must be between 18 and 45 years of age.
- The applicant should not have a criminal record.
- Both new and existing businesses can apply.
- The applicant should be a permanent resident of India.
- Interest Rate:
- The interest rate typically ranges between 10% and 12% based on the financial institution’s terms.
- Benefits:
- Subsidy offered by the government reduces the loan burden for the borrower.
- No collateral required.
- Financing for both new and existing businesses.
- Aims to create employment opportunities in both rural and urban areas.
- How to Apply:
Entrepreneurs can apply for the PMEGP loan through designated banks, which will forward the applications to the concerned implementing agencies for approval. The application can also be made online via the KVIC (Khadi and Village Industries Commission) website.
3. Stand Up India Scheme
The Stand Up India Scheme was launched in 2016 to provide financial assistance to women and Scheduled Castes (SC) or Scheduled Tribes (ST) entrepreneurs who want to start a greenfield project.
This scheme is an initiative by the Government of India to encourage entrepreneurship among women and marginalized communities.
- Loan Amount:
- Loans ranging from ₹10 lakh to ₹1 crore are provided under this scheme.
- Eligibility:
- The applicant must be a woman or from a Scheduled Caste (SC) or Scheduled Tribe (ST).
- The loan must be used to set up a greenfield (new) project in the manufacturing, services, or trading sector.
- The borrower must have a good credit score and be able to repay the loan.
- Interest Rate:
- The interest rate varies depending on the bank, but it is typically around 7% to 9%.
- Benefits:
- Encourages entrepreneurship in marginalized sections of society.
- Offers easy access to funding without the need for collateral.
- Provides a flexible repayment schedule to ease the financial burden.
- Focuses on empowering women and SC/ST communities.
- How to Apply:
Applications for Stand Up India loans can be submitted online on the Stand Up India portal or through participating banks. A detailed project report, business plan, and KYC documents are required for the application process.
4. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS)
The CGS scheme aims to provide credit to micro and small enterprises without the requirement of collateral. This government-backed guarantee scheme encourages financial institutions to extend credit to small businesses that would otherwise be considered high-risk due to lack of assets or guarantees.
- Loan Amount:
- Loans up to ₹2 crore are eligible for coverage under this scheme.
- Eligibility:
- The loan must be availed by micro and small businesses (both new and existing).
- The applicant must be a proprietor, partnership firm, or a private limited company.
- The loan is available to businesses in both rural and urban areas.
- Interest Rate:
- The interest rate on loans depends on the financial institution offering the loan, typically ranging from 10% to 12%.
- Benefits:
- No collateral is required for the loan.
- The government guarantees up to 85% of the loan amount, reducing the risk for the lender.
- Provides support to both new and existing businesses.
- The scheme promotes financial inclusion by allowing businesses with no asset base to access credit.
- How to Apply:
Business owners can apply for loans under the CGS scheme through participating commercial banks, regional rural banks (RRBs), and NBFCs. The loan application is processed by the respective lending institution, which submits the proposal to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
5. National Small Industries Corporation (NSIC) Subsidy Scheme
The NSIC Subsidy Scheme is a government initiative to support small-scale industries by providing them with financial assistance, including loans at reduced interest rates.
NSIC facilitates the marketing of products and offers various services, including raw material support, credit rating, and technology upgradation, to small businesses in India.
- Loan Amount:
- The loan amount varies depending on the project and requirement but generally ranges from ₹5 lakh to ₹10 crore.
- Eligibility:
- The scheme is available to small-scale industries, including manufacturing, service, and agro-based industries.
- The business must be registered under MSME.
- The enterprise should not be involved in any illegal activities and must have a sound financial track record.
- Interest Rate:
- The interest rate varies depending on the scheme and institution, typically between 8% and 12%.
- Benefits:
- Helps small businesses with raw material procurement, credit ratings, and technology upgradation.
- Facilitates easier access to capital with lower interest rates.
- Focuses on developing small businesses to meet global competition.
- Promotes job creation and innovation.
- How to Apply:
Applications for loans under the NSIC Subsidy Scheme can be made through the NSIC website or by visiting the nearest NSIC branch office.
Conclusion
The Indian government has implemented several loan schemes to support the growth of small businesses. These schemes provide easy access to capital, enabling entrepreneurs to grow their businesses and create more job opportunities.
Whether it is for setting up a new business, expanding an existing one, or accessing funds for working capital, these government-backed schemes can be a game-changer for small business owners in India.
The schemes discussed in this article, such as MUDRA, PMEGP, Stand Up India, CGS, and NSIC, have been designed to cater to different segments of the small business ecosystem, each with unique eligibility criteria and benefits.
It is important for small business owners to assess their needs, understand the terms of each scheme, and choose the one that best aligns with their business goals.
By taking advantage of these schemes, small businesses in India can enhance their competitiveness, promote innovation, and contribute significantly to the country’s economic development.
As India continues to develop as an entrepreneurial hub, these government-backed initiatives will remain instrumental in shaping the future of small businesses in the country.