Top Government Loan Schemes for Small Businesses in India: Central & State Options (2025 Guide)

Your guide to key government financing schemes for MSMEs, artisans, entrepreneurs, and more

Authored By FlexiLoans | Date: 14/10/2025

• Quick Summary
• What: Micro business loans are short-term, small-ticket financial solutions (₹50K–₹10L) tailored for micro and tiny businesses.
• Why: They bridge critical operational funding gaps, whether it’s restocking inventory, upgrading equipment, or managing seasonal demand.
• Who: Ideal for proprietors, small retailers, artisans, street vendors, and home-based MSMEs.
• How: Apply online with minimal documentation; loan decisions are quick and do not require collateral.
• Use Case: A nearby milk stall owner borrows ₹2 lakh to purchase supplies ahead of a festive rush and repays it safely within three months.

Introduction

Access to affordable credit remains one of the biggest hurdles for small businesses in India. Whether you’re a budding entrepreneur, a rural artisan, or a seasoned MSME owner, securing the proper funding at the right time can determine your business’s trajectory. Fortunately, the Indian government offers a wide range of financial schemes to support small businesses in their growth and development.

From zero-collateral loans to subsidised interest rates and tailored financing for women, SC/ST, and rural enterprises, these schemes are designed to bridge the credit gap and promote inclusive economic growth. Let us explore the most relevant government-backed loan options available in 2025, where to apply, and who can benefit from them.

Government loan schemes are essential tools for supporting MSMEs, particularly those that lack easy access to traditional credit. Designed to promote financial inclusion, these loans come with low interest rates, flexible terms, and simplified documentation. From working capital needs to equipment upgrades, these schemes help small businesses scale operations, stay competitive, and contribute to the economy. Let’s explore the key schemes available in 2025 that can help your business move forward.

Key Government Loan Schemes for Small Businesses in India (2025)

Small businesses often require external funding to start, sustain, or expand their operations. To meet these needs, the Indian government continues to roll out schemes that offer low-interest, collateral-free loans, designed explicitly for MSMEs, micro-entrepreneurs, artisans, and small retailers. Below are the top schemes currently active in 2025:

1. PM MUDRA Yojana (Micro Units Development & Refinance Agency)

The MUDRA Yojana offers financial support to small businesses, artisans, and service providers who lack access to formal credit.

• Loan Amount

1. Shishu: up to ₹50,000
2. Kishor: ₹50,001 – ₹5 lakh
3. Tarun: ₹5 lakh – ₹10 lakh
4. Tarun Plus (2025): ₹10 lakh – ₹20 lakh

• Eligibility: Micro-entrepreneurs, traders, artisans, and service providers.
  
• Collateral Requirement: Not required.
  
• Key Benefits:

1. No processing fees or guarantors.
2. Subsidised interest for women and SC/ST entrepreneurs.
3. Loans through banks, MFIs, and NBFCs.
4. Available digitally via the Udyam portal or lender websites.

2. Stand-Up India Scheme

This Stand-Up India scheme facilitates bank loans to women and SC/ST entrepreneurs launching greenfield businesses.

• Loan Amount: ₹10 lakh to ₹1 crore
  
• Eligibility: SC/ST or women entrepreneurs setting up new manufacturing, trading, or service ventures.
  
• Collateral Requirement: May be required, depending on the lender’s policy.
  
• Key Benefits:

1. Composite loans covering term + working capital.
2. Repayment tenure up to 7 years.
3. Application via standupmitra.in

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

Aimed at first-time borrowers with viable business ideas but no collateral, this scheme guarantees loans offered by banks/NBFCs.

• Loan Amount: Up to ₹5 crore.
  
• Eligibility: New or existing MSEs engaged in manufacturing or services.
  
• Collateral Requirement: Not required (guarantee up to 75–85%).
  
• Key Benefits:

1. Makes collateral-free credit accessible.
2. Faster sanctioning for verified Udyam-registered borrowers.
3. Supported by SIDBI and the Ministry of MSME
4. You can apply for a CGTMSE-backed loan through participating banks or NBFCs.

4. PM SVANidhi (Street Vendor AtmaNirbhar Nidhi)

Focused on supporting urban street vendors post-COVID-19, this micro-loan initiative offers small credit in progressive tranches.

• Loan Amount: ₹10,000 → ₹20,000 → ₹50,000
  
• Eligibility: Street vendors operating in urban areas are required to have valid identification proof or vending certificates.
  
• Collateral Requirement: None
  
• Key Benefits:

1. 7% interest subsidy on timely repayments.
2. Cashback rewards for digital transactions.
3. UPI-enabled tracking and support.
4. Loans accessible via pmsvanidhi.mohua.gov.in

5. Startup India Seed Fund Scheme

This government-backed initiative supports early-stage startups by providing critical seed funding through recognised incubators to help them move from idea to execution.

Who it’s for:
DPIIT-recognized startups at the proof-of-concept or prototype stage. Eligible startups must be incorporated within the last two years, have at least 51% Indian ownership, and not have availed more than ₹10 lakh from other central government schemes.

• Loan/Grant size

1. Up to ₹20 lakh for product development, trials, or proof of concept.
2. Up to ₹50 lakh via convertible debentures or debt instruments for market entry, commercialisation, or expansion.

• Collateral Requirement: Not required.

• Key Benefits:

1. Disbursed through government-approved incubators based on startup milestones.
2. Open to startups across sectors, with flexibility to apply to multiple incubators.
3. Thousands of startups across India have benefited from funding support to turn prototypes into viable businesses.
4. Loans accessible via: https://seedfund.startupindia.gov.in/

6. State Government Schemes (2025 Updates)

States like Maharashtra, Tamil Nadu, Gujarat, and Karnataka have their own MSME financing programs:

• Maharashtra Udyogini Scheme – Loans up to ₹3 lakh for women entrepreneurs.
  
• Tamil Nadu MSME Credit Guarantee Scheme – State-backed credit for up to ₹1 crore.
  
• Gujarat Industrial Policy 2020 (extended benefits) – Includes interest subsidies for MSMEs.
  
• Karnataka Elevate – Seed funding for innovative startups and MSMEs.

Note: Always check the official state portal for eligibility and deadlines.

Conclusion

Government loan schemes continue to play a vital role in empowering India’s small and micro businesses. Whether you’re a street vendor, a tech startup founder, or a woman entrepreneur planning a greenfield project, there’s likely a scheme tailored to your needs. These initiatives offer more than just financial support; they provide opportunities for self-employment, innovation, and sustainable growth.

Before applying, it’s essential to review eligibility criteria, documentation needs, and repayment terms via official sources. For additional funding support, you can also explore private digital lenders, such as FlexiLoans, which offer fast, collateral-free MSME financing to complement government schemes.

FAQs: Government Business Loan Schemes

Glossary: Key Terms Explained