Government loan schemes for small businesses: what they really are

What are government loan schemes?

They are not one product. Some schemes are loans given by banks and other lenders under a government programme, such as Mudra. Some are guarantees that let a bank lend without asking you for collateral, such as CGTMSE. Some add a subsidy to a bank loan, such as PMEGP. In every case a bank or a regulated lender still checks your application and decides, so a scheme makes a loan possible or cheaper, not automatic. You apply at a bank or on an official government portal, and you do not need an agent.

Which scheme does what?

Mudra loans

Mudra loans, under the Pradhan Mantri Mudra Yojana, are given by banks, NBFCs, small finance banks and microfinance institutions to income-generating micro businesses outside farming: small manufacturers, traders, shopkeepers, service businesses and activities allied to agriculture such as dairy or poultry. The loans come in categories called Shishu, Kishor, Tarun and Tarun Plus, by size, and are generally given without collateral. The lender sets the interest rate. You can apply at a participating lender or through the government's JanSamarth portal. Mudra has no agents, and it warns borrowers to stay away from people who claim to be its facilitators.

CGTMSE: a guarantee, not a loan

The Credit Guarantee Fund Trust for Micro and Small Enterprises does not lend money. It gives a guarantee to your bank, which lets the bank lend to an eligible micro or small business without asking for collateral or a third-party guarantee. You do not apply to CGTMSE yourself: you apply for a business loan and the bank decides whether to cover it under the guarantee. Ask your bank directly whether your loan can be covered.

PMEGP: a subsidy on a bank loan for a new unit

The Prime Minister's Employment Generation Programme helps people set up a new micro enterprise. You apply online on the KVIC PMEGP portal with a project report; the application goes to a bank, which assesses it and gives the loan; the government's margin-money subsidy is then adjusted against the loan after the unit is verified. It is meant for new units, not existing businesses, and people who have already had a similar government subsidy are usually not eligible. The subsidy share depends on your category and whether the unit is rural or urban.

Stand-Up India, PM SVANidhi and PM Vishwakarma

Stand-Up India supports SC, ST and women entrepreneurs with bank loans for a first enterprise in manufacturing, services, trading or allied agriculture; check on its official portal whether it is open when you apply. PM SVANidhi gives street vendors small working capital loans through banks and other lenders, with larger loans for those who repay on time, and runs until 2030. PM Vishwakarma supports traditional artisans with recognition, training and collateral-free credit. Each has its own official portal, and you apply there or at a bank.

ECLGS 5.0 for businesses hit by outside shocks

The Emergency Credit Line Guarantee Scheme 5.0, approved in May 2026, helps eligible businesses that already borrow from a bank or NBFC get additional credit, with the government's guarantee to the lender. It is run by the National Credit Guarantee Trustee Company and is open until 31 March 2027, or until its overall guarantee limit is used up, whichever comes first. You do not apply to the scheme directly: ask your existing lender whether you are eligible.

Startup India Seed Fund Scheme

The Startup India Seed Fund Scheme supports early-stage startups recognised by DPIIT, through selected incubators rather than banks. It can fund a proof of concept, a prototype, trials or market entry. You apply on the Startup India portal and choose incubators. It suits innovative startups more than ordinary trading or service businesses, for which Mudra or PMEGP is usually more relevant.

Schemes for homes and education

For a home, the Pradhan Mantri Awas Yojana offers eligible first-time buyers in certain income groups an interest subsidy on a home loan, subject to its conditions; our Home Loan page explains how a home loan works. For students, the government runs interest subsidy and guarantee schemes for education loans from banks, applied for through the official portal. Check the current rules on the official sites before you rely on either.

How do you apply for a government scheme loan?

Start by registering your business on the Udyam portal if you have not, because many lenders and schemes ask for it. Then apply at a participating bank branch, or on the official portal: JanSamarth for several credit-linked programmes, the KVIC portal for PMEGP, and each programme's own portal for the others. Keep your KYC, bank statements, proof of the business and, for a new unit, a clear project report ready. Registration on official portals is free. If a bank declines, ask for the reason in writing.

Beware of fake "government loan" offers

Messages and videos about a "PM loan" or "Modi loan" that you can get by paying a small fee, sharing an OTP or filling a form on a website that is not a government or bank site are scams. Government schemes do not ask you to pay anyone to receive a loan, and they do not sell loans on WhatsApp. Check that a website ends in .gov.in or belongs to your bank, apply only there, and report fraud on the RBI's Sachet portal and at cybercrime.gov.in.

Why do scheme loan applications get rejected?

A weak or incomplete project report, a business or activity the scheme does not cover, a poor credit record of the owners, missing registration or documents, or a bank that does not see how the loan will be repaid. A government programme makes lending easier, but it does not replace the bank's assessment. Fixing the project report and the documents usually matters more than applying again quickly. Our Business Loan page explains what lenders look at.

Scheme loan or ordinary business loan?

A scheme loan can mean no collateral, a subsidy or a lower cost, but it may take longer, has eligibility rules and limits, and depends on a bank's willingness to lend under it. An ordinary business loan from a bank or NBFC may be quicker or larger but can cost more or need security. For many small businesses the right answer is to check scheme eligibility first and compare it with one or two ordinary offers. If you pledge property for any loan, your property is at risk if you do not keep up repayments.

What does a scheme loan cost?

A scheme lowers the cost or the security a lender asks for; it does not make the loan free. The lender charges interest under RBI guidelines and may charge a processing fee, which some lenders waive on the smallest Mudra loans. A guarantee scheme may carry a guarantee fee that the lender passes on, and a subsidy is usually adjusted against the loan only after the unit is verified, so you repay the full loan until then. Ask for the Key Fact Statement and compare the total cost, not only the rate.

How is the EMI calculated on a scheme loan?

Your EMI depends on three things: the amount, the interest rate and the tenure. The standard formula is EMI = P x r x (1+r)^n divided by ((1+r)^n - 1), where P is the loan amount, r is the monthly interest rate and n is the number of monthly instalments. Working capital limits, such as a cash credit line under Mudra, work differently: you pay interest only on what you use. Our EMI Calculator helps you try different amounts and tenures.

Mistakes to avoid with scheme loans

Paying anyone who claims to be a scheme agent. Applying on a website that is not a government or bank site. Sending a rushed project report that does not show how the loan will be repaid. Assuming a subsidy arrives at once. Choosing a scheme that does not cover your activity. Skipping Udyam registration. Applying at several banks at the same time.

How can Atlanta Group help with government schemes?

1. Listening to your planWe start with your business, what the money is for and how much you need.
2. Checking which schemes may fitWe look at your business type, stage and category against the schemes' published rules.
3. Comparing with ordinary loansWe put a scheme route next to one or two ordinary business loan options so you can see the trade-offs.
4. Explaining the official routeWe tell you where to apply, whether at a bank or on the official portal, and that you do not need any agent.
5. Preparing the documentsIf you ask, we help you put together a clear project report and check your documents.
6. ApplyingYou apply at the bank or on the portal; for ordinary loans we can coordinate with our associated lenders.
7. Lender assessmentThe bank or lender checks your application under the programme's rules and its own policy. Atlanta Group facilitates and provides guidance; the final decision rests with the lending institution.
8. Reading the sanctionWe go through the sanction letter and Key Fact Statement with you.
9. DisbursalWe follow up on the ordinary loans we coordinate, and help you understand the scheme's own steps.
10. Support afterwardsYour dedicated relationship manager stays your point of contact.

Indicative timeline

Frequently asked questions