A Guide to Government Subsidy Loan for Businesses in India

It all started with a dream or a vision, didn’t it?

However, as your business grew, so did the challenges, such as managing cash flow and running short on funds, which became a roadblock to achieving that vision. What if you had the support to move forward and take that next big step?

Here’s where the government subsidy loan for businesses and other MSME schemes can help. This type of subsidy loan scheme for businesses makes borrowing more accessible and cheaper.

In this blog, I’ll walk you through the entire process from finding the right scheme and subsidies to applying for them. Let’s get you the money you need to grow! 

What is a Government Subsidy Loan for Business?

I’ll explain to you the government subsidy loan for business with a quick example – 

Suppose you want to purchase a set of equipment and computers to support your business’s expansion. Usually, in this situation, you’ll go to the bank asking for a loan. 

Here’s where a government subsidy loan comes in, where the government pays part of your interest to the bank, which means you end up paying a much lower interest rate.

In India, these schemes can come in the form of low-interest loans, direct cash support (similar to gov small business grants), tax benefits, and support for maintaining minimum prices. 

Let’s understand a few more benefits of taking government subsidy loans – 

• Easy Start for New Businesses

Lower-interest loans make it easier for new entrepreneurs to start and help established businesses expand.

• Helps You Hire More People

As your business grows, you’ll need a team to handle the workload. These types of loans can give you the confidence to create jobs and help the community as well.

• Boost to the Economy

The MSME sector is an important part of India’s economy, and when your business does well, it helps the whole country’s economy. These loans allow you to contribute more to the nation’s growth.

• Supports All Kinds of Businesses

With these special schemes, the government often focuses on helping specific areas like farming, clean energy, and businesses run by women or underrepresented groups.

• Lower Pressure on Your Finances

With reduced interest, you have more money to reinvest in your business for hiring, upgrading machinery, or expanding your reach.

How Are Subsidy Loans Different from Regular Business Loans?

I’ve seen this problem where many MSME business owners don’t even consider taking an msme subsidy loan from the bank because they think the interest rates are too high, there is a lot of paperwork, and the collateral requirements are too heavy. 

However, let me assure you that a government subsidy loan for business is different and much easier to apply for, with low interest rates. 

Let’s talk about how these special government business loans are different from regular bank loans and why they might just be the support you need to grow your business.

Pay Less with Lower Interest Rates

Subsidy Loan	Regular Loan
A part of the interest is paid by the government, which means lower EMIs	Higher interest rates are set by banks based on market conditions, which means higher payments are required over time.

No Big Collateral Needed

Subsidy Loan	Regular Loan
Often, no property is needed as the government backs these loans.	Property or assets are always required, which can become a barrier sometimes.

Eligibility Criteria

Subsidy Loan	Regular Loan
Based on specific government rules that consider business types, location, background, and exceptional support for women-backed businesses.	Primarily based on income and financial history

What You Can Use It For

Subsidy Loan	Regular Loan
These loans are designed and support national goals like job creation and rural growth in specific regions	It can be used for any business purpose, offering flexibility without extra benefits.

Faster Approvals (Yes, Really!)

Subsidy Loan	Regular Loan
Often have online application processes for faster approvals, sometimes within days	Involves extensive paperwork and a long waiting period for financial review and approvals.

It’s a relief to know these options exist. The real question is what to fix first in your business. A one-on-one business coaching helps you find that clarity.

Central Government Loan Subsidy Schemes for MSMEs

Now, I’m going to break down the details of each central government subsidy loan for business available for MSMEs. 

Coach tip – Don’t ignore these schemes. Their sole purpose is to help business owners grow their businesses without being overwhelmed by heavy debt.  These loans come with low interest rates, no need for security, and are easy to apply for.

Let’s break it down one by one – 

1. Pradhan Mantri MUDRA Yojana (PMMY)

This scheme was made for small business owners who need funds to start, run, or grow their business. It’s been around since 2015 and is super useful. The Mudra loan subsidy ensures that interest rates remain affordable for small businesses. 

The PMMY smartly categorises loans based on the stage and needs of your business. This ensures you get the right amount of funding at the right time.

This loan scheme was launched in 2015 by the central government for MSMEs that need funding to start, run, or grow their businesses.  This scheme categorises loans into your current stage and the needs of the business. 

This scheme is primarily structured into three categories or stages – 

• Shishu loan – For businesses that need funds to start and run their businesses. You can get up to  Rs. 50,000.
• Kishor – For businesses that need funds to keep operations running smoothly. You can get Rs. 50,001 to Rs. 5 lakh.
• Tarun –  For businesses that need funds to scale their business further. You can get Rs. 5 lakh to Rs. 10 lakh
• Tarun Plus – This is a recent addition to the scheme for businesses that have successfully repaid the “Tarun” loan and have an excellent track record.  You can get up to Rs. 20 Lakh. 

Applying is Simpler Than You Think

You can apply for a PMMY loan online through the JanSamarth portal. Here’s what you’ll generally need:

• A solid business plan 
• Your KYC documents (ID and address proof)
• Income proof
• Your business registration details

2. Prime Minister’s Employment Generation Programme (PMEGP)

This is especially important for business owners who are planning to start. PMEGP is one of the most important government subsidy loans for new businesses.

PMEGP was launched in 2008 to create jobs through supporting the building of successful businesses in both rural and urban areas. 

How much loan can you get?

• For Manufacturing (if you make things) – Up to ₹50 lakh
• For Services (if you provide services) – Up to ₹20 lakh

In the PMEGP, the government pays a fixed percentage of the loan that you don’t have to pay back. This percentage is the subsidy rate, which is categorised into general and special categories. 

• For General Category – 15% if the business is located in an Urban area & 25% if the business is located in a rural area. However, you need to invest at least 10% of the cost to be eligible for this scheme. 

• For SC/ST/OBC/minorities/women/others Special Category – 25% if the business is located in an Urban area and 35% if the business is located in a rural area. However, you need to invest at least 5% of the cost to be eligible for this scheme. 

Who can apply?

• Anyone 18 years or older
• Passed 8th standard (only needed if your project is over Rs. 10 lakh (for manufacturing) or Rs. 5 lakh (for service))
• This is only for new businesses. Not for old or running ones.

How to Apply?

• The application is simple. Simply visit the PMEGP e-portal and begin filling in the details. 
• The best part of PMEGP is that no collateral (security) is needed if the loan is under Rs. 10 lakh.

3. Credit Guarantee Fund Trust for MSMEs (CGTMSE)

This scheme is important for MSMEs that lack collateral for business loans.  

CGTMSE is a collaboration between the Ministry of Micro, SME, and the Small Industries Development Bank of India (SIDBI), started in 2000. CGTMSE is a prime example of a small scale industry loan subsidy program, especially designed for MSMEs in India who don’t have property or assets to offer as collateral for a business loan.  

What’s the primary purpose of this scheme?

• To Minimise Collateral Headaches – You don’t need to put your house or land as a guarantee.
• To Support New Entrepreneurs – New business owners can get funding more easily and start their business.
• To Boost All Businesses – Women-led and underdeveloped businesses in rural areas receive extra attention.
• To Give Banks Confidence in These Businesses – When the government shares the risk with the bank, banks feel safer lending loans to businesses.

How Much Can You Get?

Loans up to Rs. 5 crore are available in the CGTMSE.

• For tiny businesses, up to 85% of the loan is guaranteed by the government. You can be eligible for loans up to Rs. 5 lakh.
• For most other small businesses, the government provides a 75% guarantee for loans of up to Rs. 1 crore.
• For bigger loans, a 50% guarantee is taken by the government for loans between Rs. 1 crore and Rs. 5 crore.

However, the maximum credit risk taken by the government is Rs. 3.75 crore under CGTMSE.

Who can apply?

• Any MSME business in manufacturing, trading, or services.
• New or existing businesses (except agriculture and self-help groups).
• You need to show a solid business plan that demonstrates your venture can be successful.
• You must be financially healthy (no prior loan defaults).
• You need a valid Udyam Registration Certificate.

Note – if you don’t have a Udyam Registration Certificate, you can easily apply here. 

How to Apply?

• Register on the Udyam Portal
• Visit a CGTMSE-partner bank or lender with your business plan and the necessary documents. 
• After reviewing your application and bank will submit it to the CGTMSE trust online on your behalf. 
• Approvals usually come in 48 hours!

4. Interest Subvention Scheme for MSMEs

The ISS for MSMEs was introduced in 2018 to ease the burden of high interest rates on business loans, allowing business owners to get the funds to grow and modernise their businesses. 

Interest Subvention Scheme gives a discount of 2% on the interest you pay on new loans. This means you’ll be paying 7% only if the standard interest rate is 9%. 

Why is it Useful for you?

• You get cheaper loans by saving 2% interest on loans up to Rs 1 crore.
• Low interest rates help you to use these funds for your working capital or business expansion.

Who Can Apply?

• Your business must be officially registered as an MSME under Udyam.
• You need to have a valid GST number (if it’s applicable for your business).
• Your loans must be approved by banks/NBFCs.
• You must have a strong financial track record, with no prior overdue or defaulted accounts.

How Do You Get It?

• First, register your business on Udyam and get a GST number if applicable.
• Visit your bank and apply for a fresh or incremental business loan.
• Inform your bank that you want to apply for the Interest Subvention Scheme.
• The bank handles all the paperwork.
• The 2% interest discount will be applied directly to your loan after approval. 

We’ve just covered the main Central Government loan schemes.

Now, let me take you to the next step: state subsidies and specific schemes that can further support your business growth.

Business-Specific Government Loan Options

The Indian government has specific programs beyond MSME loans to help businesses, including dedicated options for a government subsidy loan for small businesses.  They’re targeted to solve specific challenges. Let’s explore these business-specific government loan options.

These schemes, especially launched to help:

• Startups
• Women Entrepreneurs
• SC/ST and Minority Business Owners

Government Loans for Startups
Startup India	Tax breaks, simpler rules, fast-track support and access to the Seed Fund.
Startup India Seed Fund	Up to ₹20 lakh (prototyping) and ₹50 lakh (market entry, commercialisation, or scaling up) for early-stage. ((less than 2 years old)
Credit Guarantee for Startups	Collateral-free credit guarantee on loans up to Rs. 2 crore.
Atal Innovation Mission	Support for innovation, workspaces, mentorship, and funding.
MSME Business Loans in 59 Minutes	Loans up to Rs. 5 crore approved online

Loans for Women Entrepreneurs
Stand-Up India Scheme	Loans of Rs. 10 lakh – Rs. 1 crore for starting new ventures, mostly collateral-free.
MUDRA Yojana	Collateral-free loans up to Rs. 10 lakh (Shishu, Kishor, Tarun categories).
Mahila Udyam Nidhi Scheme	Financial help up to Rs. 10 lakh and with easy repayment terms
Annapurna Scheme	Loans up to Rs. 50,000 for women in the food business.
Mahila Coir Yojana	Financial aid for equipment and training for the rural coir industry
TREAD Scheme	Financial aid + skill development for economically weaker women

Loans for Minority Business Owners
Term Loan Scheme	Up to Rs. 20 lakh (6% p.a.) for income up to Rs. 3 lakh. Up to Rs. 30 lakh (8% p.a.) for income up to Rs. 8 lakh and 2% discount for women
Micro-Finance Scheme	Up to Rs. 1 lakh (7% p.a.) & Rs. 1.5 lakh (10% p.a.) and a 2% interest concession for women
Virasat Scheme	Up to Rs. 10 lakh for artisans at concessional interest rates

Loans for SC/ST Business Owners
Stand-Up India Scheme	Loans of Rs. 10 lakh – Rs. 1 crore for starting a new business, often collateral-free.
NSFDC Micro-Credit Finance	Rs. 1.25 lakh loans at 6.5% interest
Mahila Samriddhi Yojana	Rs. 1.25 lakh for SC women at 6% interest
Suvidha & Utkarsh Loans	Higher-value loans for bigger projects (up to Rs. 9 lakh at 8%, Rs. 45 lakh at 9%).
Green Business & Mahila Kisan Yojana	Eco-friendly/agriculture loans for SC women
National Scheduled Tribes Finance and Development Corporation (NSTFDC)	Soft loans and subsidies for sustainable livelihood activities under the AMSY and ASRY schemes.

Who Can Apply & How? (Eligibility & Application Process)

Many business owners miss out on these government schemes because they become confused by the process. So many schemes, so many rules! 

Let’s understand how to get a government loan in a simple way, including how to apply for it and the process involved.

Who Can Apply?

Before you apply for government loans, check these basic requirements –

• You’re an MSME – Your business needs to be officially registered as an MSME. 
• Udyam Registration – You’ll always need a valid Udyam Registration Certificate to apply to any schemes. 
• GST Registered – If the scheme offers tax benefits, you’ll need a GST number.
• Good Credit Score – Creditors and lenders will check your credit history. If you’ve defaulted on any loans before, it’s tough to get new ones.
• Clear Business Plan – Have a simple business plan, what your business aims to do, and how you’ll use the money.
• Age/Education – You need to be at least 18 years old. Not all, but a few schemes might need specific education.
• Special Categories – For women, SC/ST, and minority group schemes, you‘ll need valid proof

What Documents Do You Need?

• Udyam Certificate
• PAN & Aadhaar
• Address Proof of business
• GST certificate (if your business needs)
• Financial documents (balance sheet, tax reports)
• Caste certificate (if it applies)
• Business plan

Where to Apply?

• JanSamarth Portal
• PMEGP e-portal
• PSB Loans in 59 Minutes
• Startup India Portal
• CGTMSE Portal
• State-Specific Portals

After Applying – What Next?

Once you’ve applied online, banks or officials will check your plan and documents. They’ll review everything. If approved, follow all usage rules and ensure timely repayment.

You now have the complete roadmap to secure government funding. Are you ready to learn the systems that will ensure you turn that funding into extraordinary results? Build a proven execution system with India’s leading business coach.

Final Thoughts

My goal here is to help you take the next step and drive results for your business. 

You can use this article as a starting point for your government subsidies list. The government has introduced various schemes to support MSMEs, but they can only help if you know how to use them wisely.

How to Make the Most of These Schemes?

• Find the right loan scheme that fits your business needs.
  
• Ensure your business is registered on all necessary government portals.
  
• Create a solid business plan that shows where your business is heading.
  
• Maintain a clean credit score so banks trust you.
  

Take advantage of a government subsidy loan for business, other subsidies, and no-collateral support designed to help your business grow.

From understanding loans to mastering growth. We’ve got you covered. Click here to unlock more financial strategies for your MSME.