Crisis of cash flow? A quick look on some government loan schemes for small business owners

The SME sector contributes to a sustainable and balanced economic growth. Studies and researches have shown that out of the total SMEs worldwide, around 360 to 440 million SMEs are located in the emerging markets. The developing economies are adopting aggressive strategies to strengthen their capability and capacity. Entrepreneurs prosper through new business concepts and creative frameworks. SMEs have grown from being self-employed bookkeepers’ to now fast growing, innovative, and much internationalized firms. Efforts like equipping SMEs with specific and focused tools, resources and information they need for harnessing opportunities & business growth as well as provide a platform to discuss and deliberate the wish list of SMEs along with SMB specialists in order to create white papers for policy makers.

THE PROBLEM- After agriculture, MSME sector is emerging as the second largest employer in India. In such a scenario, the sector needs to be nurtured. Due to a huge dependence on the banks for finance, banks have to recognize the vast potential that exists in responsible lending to the MSME segment. By understanding the problem of the sector and devising strategies to gear their credit mechanism structure, we need to achieve the prescribed target of lending to the sector. This is a very sensitive issue, strategies have to be developed at hierarchical levels. A lot of SMEs have shared that the cycle starts from lack of access to formal sources of finance. It leads to tapping alternate sources of funds that are costly and ultimately higher cost of credit results into poor net cash inflow. It automatically increases the risk profile of the small unit, reducing their credit worthiness. This highlights the need to timely and adequate credit from banks. Moreover, MSMEs access alternate sources of capital like equity finance, angel funding, etc. is also extremely high!

SOLUTION: A business loan provided under a government scheme or program is always favorable due to its lower interest rates. Besides, government loan schemes help you suffice your day-to-day business funding requirements. In India, both state and central government have framed various policies and schemes to cater to the financial requirement for small businesses across the country. In addition to it many public sector banks like State Bank of India (SBI), Andhra Bank, Canara Bank, Allahabad Bank, Bank of Baroda, etc. offer various financial schemes to small business owners. These schemes help the entrepreneurs obtain financial products and services according to their business requirements.

Some government loan schemes for small business owners:

Credit Guarantee Fund Scheme for Micro and Small Enterprises, which provides collateral-free credit to Indian MSMEs. The existing and the new enterprises is eligible for the scheme. Credit facilities in the form of term loans and working capital facility of up to Rs.100 lakh per borrowing unit and offers like rehabilitation assistance to sick units covered under the guarantee scheme are some features of this scheme

Credit Link Capital Subsidy Scheme for Technology Up-gradation is a scheme to help SMEs flourish in international trade markets. It aims at facilitating technology up-gradations’ by providing an upfront capital subsidy of 15% (limited to maximum Rs.15 lakhs) to SSI units for credit availed by them for the modernization of their plant and machinery.

Small Industries Development Bank of India provides the following schemes: Direct Assistance Scheme, Indirect Assistance Scheme, Promotional and Development Activities, National Equity Fund, Scheme, Technology Development and Modernization Fund Scheme, Single Window Scheme, Mahila Udyam Nidhi (MUN), Scheme and Equipment Finance Scheme, Integrated Development of Leather Sector Scheme (IDLSS) and FPTUFS(Scheme for Food Processing Industries)

National Small Industries Corporation Limited helps to import machines on hire-purchase terms, emphasizing on supplying and distributing both indigenous and imported raw material as well as for exporting the products of small business units

National Bank for Agriculture and Rural Development is to mainly promote agriculture-based rural business enterprises. It majorly offers financial assistance to small scale industries.

Market Development Assistance Scheme for MSMEs helps the Indian manufacturing SMEs gain traction in the international markets. It offers funding for participation in international trade fairs and exhibitions under the MSME India stall. It also offers funding for sector-specific market studies by industry associations, export promotion councils, and FIEO.

Mini Tools Room and Training Centre Scheme is to assist state governments set up Mini Tool Room and Training Centers. The main objective of this scheme is to develop more tool room facilities in order to provide technological support for the MSMEs and training facility in tool manufacturing and tool design to create a workforce of skilled workers, supervisors, engineers/designers, etc.

As per the National Institute for Micro, Small and Medium Enterprises, the sector presently consists of 36 million units and provides employment to more than 80 million people. The sector contributes 8% to the national GDP through 6,000 products, and constitutes 45% of the total manufacturing output. Both government and public sector banks play significant roles in funding the small scale and rural business industries in India. So know your industry, share your funding requirement and you have several options of the Government loan schemes for your small business.

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