PMEGP, Mudra, CGTMSE: Which is Right for You?

Small businesses have long been and still are citing the lack of access to business loans as the main obstacle to expanding business. As small and medium-sized businesses are growing in India, the need for easy business loan financing is also increasing. Owing to their contribution to GDP and economy, the Indian government has introduced schemes providing financial support, credit guarantees, and even subsidies.

Among the most well-known are PMEGP, Mudra, and CGTMSE. Each of these schemes focuses on developing micro and small businesses at different stages of growth. These schemes play a crucial role in fostering entrepreneurship, particularly in rural and semi-urban areas. Here is a detailed PMEGP Mudra CGTMSE comparison of schemes. This comparison will help you choose which government loan scheme is best for your business between PMEGP vs Mudra vs CGTMSE.

What is PMEGP?

Prime Minister’s Employment Generation Programme (PMEGP) is the flagship scheme of the Government of India. Khadi and Village Industries Commission (KVIC) is responsible for implementing this scheme. The aim of the PMEGP loan scheme is to provide financial support to establish new micro-enterprises, which will generate employment in rural and urban sectors.

PMEGP merges two older schemes by the government, the Rural Employment Generation Programme (REGP) and the Prime Minister’s Rojgar Yojana (PMRY). Although the PMEGP loan application process is simple, you still need to confirm your eligibility for the business loan scheme.

PMEGP Eligibility

• You must be over 18 years old.
• Self-help groups, cooperative societies, charitable trusts
• Institutions registered under the Societies Registration Act, 1860
• VIII standard pass for manufacturing projects exceeding ₹10 lakh and service projects exceeding ₹5 lakh.
• Assistance for project setup under PMEGP is not limited by income.
• PMEGP offers loans explicitly to new, feasible projects.
• Excludes existing units and those that have previously received any government subsidies (under PMRY, REGP, PMEGP, CMEGP, or any other program of the Indian or State governments)

Loan Amount and Terms

• Loan Limit: ₹25 lakh for manufacturing; ₹10 lakh for service sector.
• Margin Money (Subsidy): 15-35% depending on category and location.
• Repayment Tenure: 3 to 7 years
• Interest Rate: As per bank norms (generally 11-12%)

What is Mudra Yojana?

Micro Units Development and Refinance Agency (Mudra), launched under Pradhan Mantri MUDRA Yojana (PMMY), sanctions collateral-free loans to non-farm, non-corporate small and micro businesses. The Mudra loan scheme aims to provide financing to businesses for employment creation and income generation in manufacturing, retail, services and agriculture.

Mudra Loan Scheme Eligibility

• Micro and small units in the following sectors: retail, agriculture (non-farm enterprises), food services, manufacturing and handicrafts.
• Businessmen must have a plan for a non-farm income-generating activity.

Loan Amount and Types

• Shishu: Up to ₹50,000
• Kishor: ₹50,000 to ₹5 lakh
• Tarun: ₹5 lakh to ₹10 lakh

Mudra Loan Terms

• Loan Amount: Up to ₹10 lakh 
• No collateral needed
• Repayment: Up to 5 years
• Interest Rate: 8% to 12%

Understanding how to apply for Mudra loan allows you to get hassle-free financing for your business. Depending on your financial requirements, choose the loan type (Shishu, Kishor, or Tarun) and provide the necessary paperwork, such as your business plan, identification, and proof of residency.

What is CGTMSE?

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a government scheme that offers credit guarantees to financial institutions extending loans to small and micro businesses. The CGTMSE loan scheme reduces the risk of lenders so that lenders can extend loans without collateral.

It does not lend to firms directly. Rather, it subsidises qualifying institutions by covering up to 75-85% of the loan and incentivising the credit flow to eligible firms.

CGTMSE Eligibility Criteria

• Micro and small enterprises (including new enterprises)
• New and ongoing ventures
• Service, manufacturing, and trading industries
• Loans up to ₹5 crore are eligible for guarantee cover

Loan Terms and Benefits

• CGTMSE Guarantee Cover: 75% to 85% of the loan (90% for women/SC/ST units)
• Maximum Guarantee: ₹5 crore
• No collateral/security required
• Accessible only through banks/NBFCs registered under CGTMSE

Key Differences Between PMEGP, Mudra, and CGTMSE

The only similarity between the three is that all of them are government-backed loan schemes. PMEGP vs Mudra vs CGTMSE differences, on the other hand, separate their benefits, features and terms. Discover the difference between the PMEGP loan vs CGTMSE loan vs Mudra loan:

Feature	PMEGP	Mudra	CGTMSE
Loan Type	Term loan with subsidy	Collateral-free working capital/term loan	Credit guarantee (not a direct loan)
Eligibility	Individuals, SHGs, Trusts	Small businesses & entrepreneurs	MSEs, startups with viable projects
Loan Amount	Up to ₹25 lakh	Up to ₹10 lakh	Up to ₹5 crore (covered by guarantee)
Collateral	Not required (but bank discretion)	Not required	Not required (covered by CGTMSE)
Interest Rate	Bank-specific	8–12%	Based on lender terms
Subsidy	Yes (15-35%)	No	No
Application Mode	Online via PMEGP e-portal	Via banks, NBFCs	Bank/NBFC applies on your behalf

Although their goals are similar, Mudra loan vs CGTMSE loan work in distinct ways to increase small enterprises’ access to financing in India.  One is a lending program that provides immediate financial assistance, while the other is a credit guarantee system that supports banks in making loans without collateral.

When to Choose PMEGP, Mudra, or CGTMSE?

All three loan schemes offer easy access to financing for your small business. However, which government scheme is best for small business depends on your financial needs, purpose and business stage.

The decision between PMEGP vs Mudra for startups depends on whether you’re looking for a fast, collateral-free loan for early-stage operations or project-based finance with subsidy assistance. It makes sense to choose CGTMSE for business loan help if you’re searching for a bank or NBFC loan without collateral since it lowers lender risk and increases your chances of acceptance.

Choose PMEGP if:

• You are opening a new manufacturing or service small enterprise.
• You’re from a rural or backward area.
• You are eligible for a subsidy and can handle all the documentation and waiting period.

Choose Mudra if:

• You need instant, collateral-free finance for a small unit.
• You are in retail trade, service industry, or small-scale industry.
• You require less than ₹10 lakh of flexible funding.

Choose CGTMSE if:

• You want to get a larger loan (up to ₹5 crore).
• You want to expand an already operating business without giving collateral.
• You’re applying through a bank and want to reduce risk to the lender.

How to Apply for PMEGP, Mudra, and CGTMSE Loans?

Getting government loans such as PMEGP, Mudra, and CGTMSE is very easy and can be done with just a few simple steps. So, here is a step-by-step guide to help get you started:

How to Apply for PMEGP Loan?

• Go to the PMEGP website and choose ‘Application for New Unit‘.
• Fill in the online application with your information and save it to receive your Application ID and password.
• Upload all the required documents such as Aadhaar, project report, qualification certificates, etc.
• Use the ‘Score Card’ option to verify your loan eligibility.
• If necessary, choose your mode of EDP (Entrepreneurship Development Program) training.
• Apply online to the sponsoring agency and then go to your preferred bank with the printed form and documents.

Mudra Loan Application Process

• Select a Mudra-partner bank or NBFC (such as SBI, Bank of Baroda, etc.).
• Download and complete the Shishu, Kishore, or Tarun application form according to your loan requirements.
• Submit self-attested documents like identity proof, business plan, and financial documents.
• Apply online or offline and save your reference number.
• A representative from the bank will confirm the details and release the loan if sanctioned.

CGTMSE Application Procedure

• Visit a participating financial institution (bank/NBFC).
• Submit your business plan and papers explaining your requirement for CGTMSE coverage in clear terms.
• The lender will evaluate your proposal and, if approved, will file a CGTMSE guarantee application.
• On approval, the loan will be released without excessive collateral requirements.

Benefits of Government Schemes for Entrepreneurs

Government loan schemes such as PMEGP, Mudra, and CGTMSE have been very helpful for small and micro-enterprises in India. Over 52 crore collateral-free loans totalling ₹33 lakh crore have been given under the MUDRA Yojana since its inception alone.

These government schemes for entrepreneurs have helped thousands of entrepreneurs who cannot get funding or loans because they lack collateral, credit history, or steady income. Here are some of the benefits how government loans help you:

1. Financing without Collateral

The majority of entrepreneurs, especially in rural and semi-urban areas, do not have physical or financial collateral that can be pledged. One of the main benefits of PMEGP and Mudra loans is that they provide unsecured loans or a credit guarantee. This makes it convenient for you to get business financing.

• Mudra loans are unsecured and don’t need collateral.
• CGTMSE guarantees 75-85% of the loan amount, hence reducing the lender’s risk.

2. Faster Loan Approvals

Schemes like PMEGP and Mudra approve loans much faster than traditional banks do. The speed and simplicity of the process, relaxed documentation, and entrepreneurship-oriented approach make them ideal for new entrepreneurs or those transitioning from job to self-employment.

3. Subsidies and Low-Interest Rates

Under PMEGP, the entrepreneurs can get capital subsidies ranging from 15% to 35% of the project expenditure. It reduces the entrepreneur’s burden and ensures smooth cash flow in the initial years of the venture. Plus, these loans have much lower interest rates compared to the loans offered by traditional banks.

Common Mistakes to Avoid When Applying for PMEGP, Mudra, or CGTMSE

To apply for a government-sponsored loan scheme is easy, but there are still mistakes that can lead to rejection. Many business loan applications are rejected or put on hold because of common mistakes. Here are some of the most frequent mistakes you can commit and how you can avoid them:

1. Submission of Incomplete Documentation

Submission of incomplete application forms or missing essential documents such as:

• PAN and Aadhaar cards
• Project reports
• Financial statements (if applicable)
• Proof of residence and identity
• Caste/community certificates (in case of taking category-specific benefits)

2. Not Understanding Loan Terms

Most entrepreneurs don’t fully understand the loan terms, repayment system, etc, especially from rural areas. This can cause problems in the future during approvals and repayments. Understand all the terms and conditions properly before applying for schemes such as PMEGP and CGTMSE.

3. Ignoring Eligibility Criteria

Every scheme has well-defined eligibility criteria. Not following them and applying accordingly can result in rejection. For instance, PMEGP mandates a minimum level of educational qualification for some loan amounts. CGTMSE is applicable only to loans being disbursed through associate banks.

Conclusion

PMEGP, Mudra, and CGTMSE all have different purposes but a common objective: empowering Indian small businesses and entrepreneurs. Your selection should be made based on the phase of your business, your requirement for funds, and your capacity to fulfil certain eligibility criteria.

PMEGP is best suited for new startups requiring capital injection and government subsidy support. Mudra is for micro-enterprises that want instant, collateral-free loans. CGTMSE, on the other hand, is appropriate for such organizations that seek high-value loans with low collateral participation. Whichever you choose, start the application process by verifying your business need, eligibility, and documentary readiness.

FAQs about PMEGP vs Mudra vs CGTMSE