Invest in Popular Businesses of all time with Proper Financing Schemes

Financing Schemes

SMEs and MSMEs are two of the most prominent drivers of India’s financial growth. In contrast to the mainstream industry, MSMEs and SMEs present a lively and dynamic segment comprising of sectors such as manufacturing, service, processing and packaging, IT, logistics, and many more.

  • As of 2017, there were a total of 42.50 million registered and unregistered SMEs in India, contributing to almost 95% of the nation’s industrial units.

Unfortunately, SMEs and MSMEs across the nation suffer from a constant lack of finance, which experts consider as one of the main reasons limiting the growth rate of this vital and highly prospective sector.

  • Despite accounting for almost 45% of India’s total manufacturing prowess, SMEs and MSMEs represent only 16% of the total financial lending in India.

Thankfully, several financing schemes have been introduced to maximize investment opportunities and benefit SMEs and MSMEs in India.

Investment in India’s small businesses

Today, business finance is extended by both Government-backed, as well as private lenders, including Non-Banking Financial Companies. 

Revised guidelines created a safer lending environment, while business loans backed by credit subsidy schemes provide an easy and secure lending option for eligible individuals.

  • According to recent reports published by NASSCOM, 2018 saw an almost 108% increase in total funding provided to startups across India.

There are several financing schemes that offer in future entrepreneurs; here are some of the most promising ones.

1. Credit Guarantee Fund Trust for Micro Small Enterprises

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was introduced in 2000, offering collateral-free advance to the MSME sector. 

The fund is disbursed to both new and existing enterprises, supervised by the MSME Ministry and SIDBI. 

An entrepreneur can determine how much working capital does the business need as well as the initial investment and apply for a collateral-free loan to finance their operation.

CGTMSE offers a guarantee against a certain loan sum, depending on the total loan amount. For example, for a loan of up to Rs.5 lakh, 85% of the loan amount will be covered as business finance. 

For advances of Rs.5 lakh to Rs.50 lakh, 75% of the total loan amount is covered, whereas for loan amounts higher than Rs.50 lakh (till Rs.100 lakh,) 75% will be covered for up to Rs.50 lakh, and 50% on the remaining amount will be covered as a guarantee.

  • There are approximately 26 public sectors and 21 private-sector lenders (along with 73 rural banks) that are registered as Member Lending Institutions with CGTMSE.

Advances secured as a capital finance loan, machinery loan, invoice financing, etc. can benefit from CGTMSE’s collateral-free credit facilities. 

It is likely to assist the manufacturing and service sector the most, helping an entrepreneur become a successful small business owner.

2. MUDRA loan

MUDRA, or Micro-Units Development & Refinance Agency, was introduced under Pradhan Mantri Mudra Yojana. Launched in 2015 as a subsidiary owned by SIDBI, MUDRA offers effective refinancing options for organizations engaged in the manufacturing, trading, or service sector.

Mudra loan offers business finance in three tiers, ‘Sishu,’ ‘Kishor,’ and ‘Tarun’. The loan amount is decided based on the stage of development and revenue generated by a particular organization; the same is applied to determine the rate of interest on the disbursed credit.

MUDRA offers credit for MSME in primarily two forms, Micro Credit Scheme, and Refinance Scheme from commercial, rural, and Non-Banking Financial Institutions. 

Micro Credit Scheme offers credits of up to Rs.1 lakh to small businesses, self-help groups, Joint Liability Group, and individuals to promote small business activities. Refinance schemes offers up to Rs.10 lakh to MSMEs and SMEs.

Certain financial institutions, including NBFCs like Bajaj Finserv, offer Business loans of up to Rs.30 lakh to eligible applicants to fund their business operations. 

Moreover, this NBFC also provides a pre-approved offer to existing customers that simplify the application process and make it less time-consuming for borrowers.

3. Stand Up India scheme

Stand Up India scheme offers financial assistance to the economically backward sections of the nation. It primarily assists individuals in the rural section of the country, ensuring access to the necessary finance to start and grow their business. 

It is a Government business loan scheme in India that every entrepreneur should know, which offers credits between Rs.10 lakh to Rs.1 crore to Scheduled Caste, Scheduled Tribe, and women applicants working in the non-farming sector.

India’s SME and MSME sector is likely to receive a significant boost in the coming years, thanks to the introduction of several Government-backed schemes in recent years. 

Revised guidelines regarding the lending process, financial institutions, and other facilities are also likely to improve the scenario over time.

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