Government Subsidy Loan for Business: Everything You Must Know

Traditionally, it has been difficult for businesses to get financing to meet their business objectives. Even today, MSMEs in India face a credit gap of ₹25 lakh crore as formal lenders meet less than 15% of the sector’s requirements. However, government subsidy loans for businesses are bridging that gap and promoting the spirit of entrepreneurship in India.

These loans not only minimise collateral requirements but also offer low interest rates. Over 9.87 lakh small businesses have received an MSME loan subsidy India of ₹26,124.26 crore since its establishment. The key MSME subsidy-backed loans in India that you can apply for are PMEGP, CGTMSE, and MUDRA. Know what is government subsidy loan for business and its benefits.

What is a Government Subsidy Loan for Businesses?

Basics first! What is a subsidy loan? A government subsidy loan for business is a business financing that the Government supports and provides a subsidy. This ‘loan with government support’ aims to make it easy for businesses to get a loan. They come with low subsidies in the form of interest or capital, making them affordable for small and medium enterprises.

Purpose of a Loan with Government Support

The primary purpose of a loan with government support is to boost entrepreneurship, promote economic development, create employment, and build up local industries. The government helps more people start or expand their businesses by reducing financial barriers.

Types of Government Subsidy Loan for Business

The government provides different types of subsidies to businesses. Here are the types of government subsidies you can get in India for different types of businesses:

• Interest Subsidy: In this subsidy, the government covers a portion of the interest to lower the effective interest rate.
• Capital or Credit-Linked Subsidy: Government subsidies the part of the principal, which reduces the payment amount.
• Collateral-Free Loan Guarantees: The government provides the unsecured loan, meaning that businesses can borrow without offering any collateral.

Top Government Subsidy Loan Schemes for Businesses in India

Government subsidy loan for businesses not only provide easy access to business loans but also reduce the cost of borrowing. In a time when the eligibility criteria for business loans are getting stricter, MSME loan subsidy India helps you meet all your business objectives with ease. Here are the top government subsidy loan schemes for businesses in India you must know:

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

The PMEGP scheme promotes self-employment through micro-enterprises and targets first-time entrepreneurs. KVIC manages the PMEGP scheme and ensures it generates employment in urban and rural areas by making financing accessible.

The government subsidy loan provides financial assistance for setting up manufacturing and service-based units. If you are planning to start a manufacturing business, the PMEGP subsidy is ideal for you. However, the cost of subsidy varies according to category (general, SC/ST, women) and location (urban or rural).

PMEGP Eligibility Criteria

• Applicants must be at least 18 years old.
• You must have completed at least an 8th-grade education.
• Only new businesses are eligible; existing units cannot apply.
• Encourages first-time entrepreneurs, including women, SC/ST individuals, and those from economically weaker sections.

How Much Subsidy Does PMEGP Offer?

The government offers a PMEGP subsidy between 15%–35% of total project costs, depending on your location and category. This directly reduces the margin of money you need to contribute.

	Loan Amount	Range
Manufacturing	Up to ₹25 lakh	15% – 35%
Services	Up to ₹10 lakh	15% – 35%

How to Apply for PMEGP

• Visit the KVIC Portal: www.kviconline.gov.in.
• Fill out the KVIC online registration and application form.
• Upload the required papers such as the business project report, Aadhaar, PAN and educational certificate.
• Participate in the EDP training organised by the nodal agency.
• After verifying the documents, the bank will sanction the loan.

2. MUDRA Loan (under PMMY)

MUDRA loan is the Indian government’s financing program that provides subsidies to micro and small businesses. The government introduced it in 2015 under the Pradhan Mantri MUDRA Yojana (PMMY) to make loans available to non-corporate, non-farm small/micro enterprises.

MUDRA loans are ideal for underserved categories of businesses like small manufacturers, craftsmen, vendors, and service providers. These are collateral-free business loans, which means you don’t have to provide any collateral.

MUDRA Loan Eligibility Criteria

• Must be a non-corporate small business (manufacturer, service provider, trader, artisan).
• Applicants should have a business plan.
• You don’t need to provide any collateral.
• Must be a proprietorship, partnership, or small business not registered as companies.
• You must be between 18 and 65 years old
• An Indian citizen
• Require a loan of up to ₹10 lakh for a legitimate business purpose
• Should not be a willful defaulter of any financial institution.

How Much Subsidy Does MUDRA Loan Offer?

Through refinancing, MUDRA provides an indirect interest subsidy to banks, thereby reducing the interest payable to borrowers. Here is an MSME subsidy scheme list you must refer to:

Shishu	Up to ₹50,000
Kishore	₹50,001 – ₹5 lakh
Tarun	₹5 lakh – ₹10 lakh
Tarun Plus	₹10 lakh – ₹20 lakh

How to Apply for Mudra Loan

• Go to any of your preferred banks, NBFC or microfinance institutions.
• Complete the MUDRA loan application and send the business plan, KYC documents and any needed financials.
• Once authorities approve your loan, they transfer the money directly into your account, and they may issue you a MUDRA CARD for convenient transactions.

3. Stand-Up India Scheme

Stand-Up India supports women entrepreneurs in setting up greenfield (first-time) businesses in manufacturing, services, or trading. The schemes integrate loans, including term loans and working capital loans. It offers handholding support, mentorship, skill development, etc.

Stand-Up India Eligibility Criteria

• Applicants should be from SC/ST or women entrepreneurs.
• Has to be considering setting up a greenfield business (New business).
• You must submit a business plan and proof that you can repay the loan.
• Age: 18 years and above.

How Much Subsidy Does Stand-up India Loan Offer?

You can obtain a margin money subsidy of up to 25% from the banks with a balance of 75%. Loans are available between ₹10 lakh and ₹1 crore for eligible businesses.

How to Apply for Stand-up India 

• Visit the Stand-Up India portal or contact a bank branch.
• Apply and complete the application with business details, KYC and project report.
• Once the lender approves your loan, they disburse the funds and offer continuous assistance to grow your business.

4. Credit Linked Capital Subsidy Scheme (CLCSS)

Credit Linked Capital Subsidy Scheme (CLCSS) provides a 15% capital subsidy on business loans taken out for the upgrade of equipment and plant in order to assist Micro and Small Enterprises (MSEs) in modernising their operations. The program has a maximum subsidy ceiling of ₹15 lakh and promotes the use of internationally competitive and energy-efficient technology in important industrial sectors.

CLCSS assists MSMEs in upgrading technology because it offers direct capital subsidies for purchasing modern plants and machinery. The scheme is exceptionally well suited for small manufacturing units seeking to increase productivity, cut costs and improve quality. 

CLCSS Eligibility Criteria

• The business must be a micro or small enterprise engaged in manufacturing activities.
• It should belong to one of the approved sectors identified by the Ministry of MSME.
• The enterprise must have taken a term loan from a recognised bank or financial institution specifically for technology upgradation.
• The technology being adopted must be among the approved technologies listed under the scheme.
• You must register your business as an MSME and ensure it isn’t a defaulter with any bank or financial institution.
• The scheme is generally applicable to existing enterprises, not new startups or greenfield projects.

How Much Subsidy Does Stand-up India Loan Offer?

The scheme provides a 15% subsidy on the cost of new machinery/technology up to ₹ 15 lakh. The subsidy is only applicable on the cost of machinery, with a cap of ₹15 lakh for each upgrade.

How to Apply for CLCSS

• Approach a Primary Lending Institution (PLI) such as a bank or NBFC.
• Apply for a term loan and request a CLCSS subsidy.
• Log in to the MSME official portal, fill out the ‘Apply for Subsidy’ form, and upload machinery details.
• You can submit and track your application online, and the bank will credit the subsidy to your loan account once approved.

5. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme provides credit guarantees to banks and lending institutions that offer loans to MSEs. By offering a guarantee against the associated credit risk, CGTMSE aims to incentivise banks to provide MSE loans without collateral.

This makes it easier for small businesses to get much-needed funding without having to provide collateral or security, which is sometimes a big obstacle for them. The program makes it simpler for micro and small enterprises to expand and continue operating by covering both term and working capital loans. This minimises the risk for banks and financial institutions, compelling them to lend to micro and small businesses that could otherwise find it hard to get a loan.

CGTMSE Eligibility Criteria

• Accessible to micro and small enterprises of the manufacturing and service sectors.
• A business model is required
• Collateral is needed for loan approval.
• Must be a registered MSE under MSME guidelines.
• Not available for agriculture and educational institutions.

How Much Subsidy Does CGTMSE Loan Offer?

Loans up to ₹2 crore are available under the CGTMSE scheme. Not a direct subsidy but a full/partial guarantee of the loan amount.

• Micro Businesses: Up to 85% of the loan balance, with a ₹50 lakh maximum guarantee restriction.
• Other MSEs: A maximum guarantee ceiling of ₹37.5 lakh, up to 75% of the loan amount.
• Loans Over ₹1 Crore: 50% of the loan amount up to ₹25 lakh, with a maximum guarantee ceiling.

How to Apply for CGTMSE Business Loan

• Check your eligibility as an MSE.
• Visit any bank or NBFC in towns and submit your application for a loan while carrying your business documents and project report.
• After approval, the lender will disburse your loan without requiring collateral.

6. Startup India Seed Fund Scheme (SISFS)

SISFS supports early-stage startups by helping them validate concepts and prototypes with financial backing. The scheme provides a mixture of grants and concessional loans, allowing you to pay for all the development costs, proof of concept, product development and entry into the market.

SISFS Eligibility Criteria

• Applicants should be DPIIT-registered start-ups who should be in the idea validation/development process.
• The business should be less than 2 years old and not receive more than ₹10 lakh worth of government grants.

How Much Subsidy Does SISFS Loan Offer?

Startups can get funding at different phases of growth via the Startup India Seed Fund Scheme (SISFS). Here is a MSME subsidy scheme list:

• A grant of up to ₹20 lakhs is given for product testing, prototype development, or Proof of Concept validation.
• Convertible debentures or debt-linked securities for market entrance, commercialisation, or expansion up to ₹50 lakhs.
• Up to ₹20 lakh as a grant for idea validation.
• Up to ₹50 lakh as a loan for product development and market entry.
• Loan Amount Range: ₹20 lakh (grant) + ₹50 lakh (loan)

How to Apply for SISFS

• Get registered on the Startup India portal for your startup.
• Submit your business plan and supporting documents to apply for the Seed Fund scheme.
• After selection, the fund disburses money in tranches based on your project milestones.
• Authorities will provide funding for idea validation (up to ₹20 lakh) and product development (up to ₹50 lakh).

7. State-Level Subsidy Schemes (Optional Add-ons)

State governments offer subsidy scheme loans to businesses based on their industrial and MSME policies. Such schemes complement the central-level schemes, such as PMEGP or MUDRA loans.

• Telangana provides T-IDEA (Telangana State Industrial Development and Entrepreneur Advancement) and T-PRIDE (SC/ST entrepreneurs focused).
• Maharashtra follows the Package Scheme of Incentives (PSI) to attract manufacturing/servicing units.
• Odisha’s MSME policy offers capital investment subsidies, interest subvention, and tax incentives.

Such state initiatives will support infrastructure-related issues, reimburse GST, and support women, SC/ST and rural entrepreneurs, thus enlisting India’s MSME subsidy scheme list.

State-level Subsidy Eligibility Criteria

• Must be an Indian citizen with a viable business plan.
• Start your business as an MSME or startup (through Udyam/Udyog Aadhaar or DPIIT registration).
• Should be within the age range of 18–65 years.
• Meet sector-specific criteria ( manufacturing, services, trading, focus on women, SC or ST entrepreneurs, etc.
• Some schemes require business experience, a minimum turnover or profitability, and maintaining a positive credit score.

How Much Subsidy Does State-Level Subsidy Schemes Offer?

• Capital subsidy on fixed assets or machinery
• Interest subsidy on term loans
• Power tariff subsidy or GST reimbursement in some cases
• Special incentives for units in backward districts or promoted sectors

The amount of the loan is subject to the state policy and the project size. Even though state policies do not always provide direct loans, they have a subsidy component or interest-subsidising bank/NBFC loans.

How to Apply for State-level Loan with Government Support?

• Access the official website of the state’s Industries or MSME department.
• Register your business on the portal (if applicable) and fill in the required details.
• Submit important documents, such as the Udyam certificate, project report, land/lease documents, and identity/address proofs.
• Apply online or to the concerned District Industries Centre (DIC).
• Track application status through the portal or DIC.

With the 2025 MSME budget updates, the government increased the investment and turnover limits for MSMEs. Policymakers have launched credit cards for micro-enterprises and unique schemes for first-time entrepreneurs.

Using these schemes, you can access low-interest, no-collateral financing and enjoy government support to develop and increase your business in India. Also, read how to apply for collateral-free loans.

Eligibility Criteria for Government Subsidy Loans

To apply for government subsidy loans, businesses must meet specific MSME loan eligibility criteria. These criteria vary slightly depending on whether the loan is for MSMEs or startups. Here’s what you need to know about startup loan eligibility in India:

What is the process for the Startup or MSME Registration process with (Udyam/Udyog Aadhaar)?

Businesses must register as startups or MSMEs to qualify for startup loans in India. Applicants can use any of Udyam or Udyog Aadhaar to register their businesses. This process ensures that businesses are set up to be eligible for financial aid, support services, and special loans for startups and MSMEs. If you don’t register your business, you will lose eligibility for subsidy programs that support MSME growth and development.

What is the MSME Loan Eligibility?

• The applicant applying for a subsidy must be an Indian citizen with a well-defined business plan.
• You must register your business under the MSME category (Udyam or Udyog Aadhaar).
• Applicants must fall within the age group of 18 to 65 years
• The business must be in manufacturing, services, or trading
• Special schemes may be available for women and SC/ST entrepreneurs.
• Lenders classify your business as micro, small, or medium based on its turnover.

What is the Startup Loan Eligibility in India?

• Must be an Indian citizen with a viable business plan in place.
• To qualify for government loan schemes, startups must be registered under Udyam or Udyog Aadhaar. 
• Startups should generally be within 5 to 7 years of operation to qualify for loans.
• Startups in sectors such as manufacturing, services, and technology are eligible.
• Government schemes provide additional support to women entrepreneurs and SC/ST businesses.

These requirements are essential to qualifying for financial assistance and leveraging the available schemes for business growth when applying for MSME loans or startup loans in India.

How to Apply for a Government Subsidy Loan for Business (Step-by-Step)?

Obtaining a government subsidy loan for your business is a simplified and digitised process. Here is how to apply for government loan for business:

Step 1: Finalise Your Business Idea and Plan

Start with a conceptual plan of a clear business idea and a formulated business plan. This should entail your objectives, anticipated revenue and how you intend to use the loan funds.

Step 2: Register Your Business

Registering your business with the Udyam portal for the MSME certifications step is critical for most schemes and enhances your eligibility for government support.

Step 3: Choose the Relevant Scheme

Research and choose the most appropriate government scheme as per your requirements like PMEGP, MUDRA, Stand-Up India, and Startup India.

Step 4: Visit the Official Portal

Go to the official portal for your chosen scheme. Key portals include:

• kviconline.gov.in/pmegp (PMEGP)
• udyamimitra.in (MUDRA, CGTMSE)
• standupmitra.in (Stand-Up India)
• startupindia.gov.in (Startup India)

Step 5: Fill in the Application Form and Upload Documents

Upload all the necessary documents, including your business plan, Udyam registration certificate, GST certificate, identity proof, and financial statements.

Step 6: Await Loan Sanction and Subsidy Disbursal

Your application will be processed after submission. If approved, the loan money and subsidy will be paid directly into your bank account.

How to Get MSME Subsidy?

To get an MSME subsidy, ensure that you have registered your business on the Udyam Mitra or KVIC. And meet all the scheme-specific eligibility requirements. Timely and accurate documentation and a strong business plan will help you obtain your MSME subsidy. To know more, read MSME loan schemes.

Documents Required for Loan with Government Support

Before you apply for a loan with government support, gather the essential documents for the business loan subsidy.

Documents for Business Loan Subsidy

• To qualify for any business loan subsidy, ensure you have the applicant’s Aadhaar and PAN cards and a clear business plan or Detailed Project Report (DPR).
• Register at udyamregistration.gov.in and get GST registration (if applicable). If you are applying through the reserved categories, such as SC/ST or Women Entrepreneurs, attach your caste certificate.
• Also, include a copy of your bank account details and a list of your project cost estimates or vendor quotations.

Requirement for MSME Scheme Documents

For MSME-specific schemes, the following documentation may be required:

• Proof of Business address, such as utility bills or rental agreements.
• Business Incorporation Documents, such as partnership deeds or company registration certificates.
• Financial Statements such as balance sheets and profit and loss accounts.
• Income Tax Returns (ITRs) of the previous 1–2 years.

Benefits of Government Subsidy Business Loans

There are numerous advantages of a subsidy loan. You will pay low interest rates compared to conventional business loans. This would be more affordable for businesses in terms of managing their finances and concentrating on growth. Another significant advantage is collateral-free access to funding.

Unlike conventional loans, you do not have to offer assets as collateral, which makes it low risk for entrepreneurs. Moreover, such schemes encourage job creation and self-employment; their effects extend to the larger economy and include small businesses and startups.

Benefits of the MSME Subsidy Scheme

• Low-interest Rate: The MSME subsidy scheme offers businesses low-interest loans, easing financial pressure.
• Less Financial Stress: Government subsidies make business loans more accessible for startups and micro, small, and medium-sized businesses (MSMEs) by lowering the effective interest rate or providing partial capital assistance.
• Collateral-Free Financing Programs: These programs, such as CGTMSE and MUDRA, provide loans without collateral, enabling small firms to get credit that would not normally be available from conventional lenders.
• Motivation for Novice Entrepreneurs: Particularly in rural and underdeveloped regions, subsidised loans make it simpler for first-generation company owners without financial support or prior business experience to get money.
• Assistance for Particular Industries: Priority industries, including manufacturing, agriculture, women-led businesses, SC/ST entrepreneurs, and green technology, are often the focus of subsidies, which support their sustainable growth.

Tips to Maximise Chances of Approval

To increase loan approval chances for PMEGP loan eligibility, follow these steps:

• Keep the Business Plan Clear and Sector-focused: A careful plan that focuses on your field will give your vision and preparation to the lenders.
• Register Business under Udyam/MSME: By having official registration, your business qualifies for government schemes such as PMEGP and MSME loans.
• Approach Banks with Prior Documentation: Visit all relevant banks with proper documents, including your business plan, financial statements and registration papers.
• Track Application Deadlines: Make sure you are aware of important deadlines and submit your application on time.
• Apply Early: Early submission saves time for any amendments and makes it easier for you to get the loan.

Conclusion

Government subsidy loans are among the smartest ways for startups and MSMEs to launch, expand or scale their operations in India. With benefits such as lower interest rates, collateral-free financing, and facilitation of underrepresented classes, these schemes create new windows for hopeful entrepreneurs.

At FlexiLoans, we know credit challenges can make funding feel out of reach, but your revenue tells a better story. We help business owners like you access business loans that don’t rely heavily on personal credit. If your business is bringing in consistent revenue, you may qualify, even with a low credit score.

FAQs about Government Subsidy Loan for Business

Q. 1 Which government scheme gives loans with subsidies for business?

Ans: Through PMEGP, MUDRA, and CGTMSE, loan support with subsidies is available to promote small and medium business ventures. This will help reduce launching costs and encourage entrepreneurship in different industries.

Q. 2 How can I get a government loan subsidy for MSME?

Ans: Fill out the completed application process on prominent portals such as Udyam or portal-specific sites, ensuring you have included all mandatory documents. Ensure that your business is eligible for schemes such as PMEGP or CLCSS, which have been outlined in the criteria.

Q. 3 Can women get business loans with subsidies in India?

Ans: Yes, Stand-Up India, Mahila Udyam Nidhi, and Mudra Yojana are among the initiatives offering subsidised women entrepreneurs loans. The initiatives provide women-led micro, small and medium enterprises with cheaper loans without collateral.

Q. 4 What is the maximum subsidy amount under PMEGP?

Ans: PMEGP’s rates for subsidies are 35% for the special categories and 25% for other projects based on the cost of the model project. The availability of subsidy depends on the project’s location, the class under which it belongs, and the nature of the business.

Q. 5 Is collateral required for a subsidy loan?

Ans: Lenders sometimes do not require collateral for loans given under initiatives such as CGTMSE and Mudra. However, collateral may or may not be necessary and vary according to each lender’s loan amount and rules.