You've heard that the government offers financial support for small businesses — but when you sit down to find out which government business loan scheme actually applies to you, the information gets confusing fast. Multiple schemes, different eligibility rules, different lenders, different amounts. It's hard to know where to start. This article cuts through that. You'll find the 7 most relevant government schemes for small businesses and MSMEs in 2026, what each one offers, who qualifies, and what you need to do next.
What Government Business Loan Schemes Actually Mean
When people talk about a government business loan, they don't always mean the same thing. Some schemes involve the government lending money directly. Others involve the government subsidising the interest on a loan from a bank or NBFC. Others involve the government guaranteeing a loan — meaning the lender takes on less risk and is therefore more willing to lend to you without collateral.
Understanding which type you're dealing with matters, because it changes what you apply for, who you apply to, and what you need to bring.
The 3 broad types of government schemes for MSME financing are:
- Direct lending schemes: where a government body or institution is the lender (rare for individual businesses)
- Subsidy-linked schemes: where the government provides a capital subsidy or interest subsidy on loans from approved banks or NBFCs
- Guarantee-backed schemes: where the government guarantees a portion of the loan, reducing the lender's risk so that you can borrow without collateral
Most of what's available to you in 2026 falls into the second or third category. That's actually good news. It means you apply through a bank or NBFC — not a government department — and the scheme benefits are built into the loan structure.
7 Government Business Loan Schemes at a Glance
Here's a quick comparison before we go deeper into each one:
*All figures are indicative and subject to scheme guidelines as published by the relevant ministry or institution.
What Each Government Business Loan Scheme Offers You
1. PM Mudra Yojana — Collateral-Free Loans for Micro and Small Businesses
If you run a micro or small enterprise — a salon, a food stall, a small manufacturing unit, a trading business — PM Mudra Yojana is one of the most widely used government business loan schemes available to micro and small enterprises. Launched under the Pradhan Mantri Mudra Yojana (PMMY), this scheme offers loans through banks, NBFCs, and microfinance institutions at 3 tiers:
- Shishu: Up to ₹50,000* — for businesses just starting out or very early-stage
- Kishore: ₹50,001* to ₹5 Lakh* — for businesses that have started and need growth capital
- Tarun: ₹5 Lakh* to ₹10 Lakh* — for established micro businesses looking to expand
- Tarun Plus: ₹10 lakh* to ₹20 lakh* — for entrepreneurs who have successfully repaid previous Tarun category loans.
The Shishu and Kishore tiers require no collateral. You apply through a participating lender — not through a government portal — and the lender processes your application against the scheme guidelines. The scheme details are published here.
Related reading: To understand eligibility, loan categories, and how to apply, read Shriram Finance’s detailed guide on the PM Mudra Loan Scheme.
2. CGTMSE — Collateral-Free Borrowing for MSMEs
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a government-backed credit guarantee scheme that helps eligible MSMEs access business loans without providing collateral. Rather than lending directly to businesses, CGTMSE provides a guarantee to participating lenders. If a borrower is unable to repay the loan, the lender can recover a specified portion of the outstanding amount from the trust, subject to the scheme's terms and conditions. This reduces the lender's risk and makes it easier to sanction collateral-free loans based on the strength of the business and its cash flows.
The practical result: if a lender is participating in CGTMSE, they can sanction a loan to you based on your business cash flows alone — without a property or asset pledge. The scheme covers loans up to ₹10 Crore* for eligible MSME units, with specific guarantee coverage percentages depending on your business category. Full details are available at cgtmse.in.
One thing to note: CGTMSE is a lender-protection mechanism. You don't apply to CGTMSE. You apply to the lender, and the lender decides whether to cover your loan under the CGTMSE guarantee. Ask your lender directly whether they participate.
Related reading: Learn how collateral-free financing works in Shriram Finance’s guide to the CGTMSE Loan Scheme.
Already know what you need?
Check your eligibility for Shriram Business Loan — or use the Business Loan EMI Calculator to understand your repayment before you apply.
3. Stand-Up India — Financing for SC/ST Entrepreneurs and Women
Stand-Up India is a government scheme designed to extend the reach of formal credit to two specific groups: SC/ST entrepreneurs and women business owners setting up a greenfield enterprise. If you fall into either category, this scheme offers loans ranging from ₹10 Lakh* to ₹1 Crore* per borrower — with at least one loan per bank branch reserved for each eligible category.
The scheme is administered through banks and covers composite loans — a combination of term loan and working capital — for manufacturing, services, or trading enterprises. You apply through a scheduled commercial bank. The scheme details and list of participating banks are available at standupmitra.in.
Related reading: Explore eligibility criteria and the application process in Shriram Finance’s detailed article on the Stand-Up India Scheme.
4. PM Employment Generation Programme (PMEGP) — Capital Subsidy for New Business Setup
If you're setting up a new business — not expanding an existing one — PMEGP is one of the few government business loans that comes with a direct capital subsidy. The scheme provides a subsidy of 15%* to 35%* of the project cost, depending on your location and category, with the remaining amount funded through a bank loan. Manufacturing units can access project financing up to ₹50 Lakh* and service units up to ₹20 Lakh*.
PMEGP is administered by the Khadi and Village Industries Commission (KVIC) at the national level. Applications are submitted through the PMEGP portal on kviconline.gov.in. This is one of the few government-backed schemes where the application process genuinely starts with a government department rather than a lender.
Related reading: For a step-by-step breakdown, read Shriram Finance’s guide to the PMEGP Loan Scheme.
5. Udyogini Scheme — Subsidised and Zero-Interest Loans for Women in Trade
The Udyogini scheme, run through Women Development Corporations in various states and some nationalised banks, targets women entrepreneurs in small trade and service businesses. Loan amounts vary by state, but many programmes offer up to ₹3 Lakh* with subsidised or zero-interest terms for women from below-poverty-line households or specific priority categories.
Because this scheme is state administered in many cases, the availability, terms, and application process vary by location. Contact your state Women Development Corporation or a participating bank for current details in your district.
Related reading: To learn about eligibility and benefits, read Shriram Finance’s article on the Udyogini Scheme for Women Entrepreneurs.
6. SIDBI MSME Loan Schemes — Collateral-Free Programmes for Established MSMEs
The Small Industries Development Bank of India (SIDBI) runs multiple programmes to channel credit to MSME business loan applicants — both directly and through partner NBFCs and banks. Their SMILE (SIDBI Make in India Loan for Enterprises) programme and SPEED (Speedy Programme for Empowerment of Enterprises for Development) initiative offer collateral-free loans to eligible MSMEs.
SIDBI also partners with registered NBFCs to channel MSME credit — which means you may access SIDBI funding through a registered NBFC without applying directly to SIDBI. Visit sidbi.in for current programme details and participating lender lists.
Related reading: Understand available programmes and eligibility in Shriram Finance’s guide to SIDBI MSME Loan Schemes.
7. National SC-ST Hub Scheme — Market Access and Financing Linkages for SC/ST Entrepreneurs
Run by the Ministry of MSME, the National SC-ST Hub provides market access support, procurement linkages with central government PSUs, and financing facilitation for SC and ST entrepreneurs. While it is primarily a market linkage scheme, the financing component connects eligible entrepreneurs with formal credit through participating institutions.
If you're an SC or ST entrepreneur, this scheme works best alongside CGTMSE or Stand-Up India — not as a standalone financing source. Details and registration are available on the National SC-ST Hub portal at scsthub.in.
Related reading: Learn how this initiative supports business growth in Shriram Finance’s article on the National SC-ST Hub Scheme.
Are You Eligible? A Quick Self-Check
Before you approach any lender or apply through any government portal, run through this checklist. These are the baseline conditions most government-linked schemes and MSME loan programmes require:
If you ticked all 8, you're ready to explore scheme-linked financing in detail. If you couldn't tick 2 or more, identify which ones — they'll tell you exactly what to address before applying.
How to Apply for a Government Business Loan Scheme — Step by Step
The process varies slightly by scheme, but for most MSME loan schemes linked to government guarantees or subsidies, this is how it works:
- Step 1 — Register on Udyam: Visit udyamregistration.gov.in and complete your Udyam Registration. This gives you your MSME identity and is required by most scheme-linked lenders.
- Step 2 — Choose your scheme: Based on your business type, category, and loan requirement, identify which of the 7 schemes above fits. Don't apply to 3 at once — it creates confusion and can affect your credit profile.
- Step 3 — Approach a participating lender: For CGTMSE, PM Mudra, and SIDBI programmes, you apply through a bank or NBFC — not a government portal. Confirm the lender participates in the scheme before applying.
- Step 4 — Prepare your documents: Typically: Udyam certificate, PAN card, Aadhaar, bank statements for the last 6–12 months, ITR for the last 1–2 years, and business proof (GST certificate, shop licence, etc.).
- Step 5 — Submit and track: For PMEGP and some state schemes, you submit through a government portal. For CGTMSE and Mudra-linked loans, the lender manages the submission. Follow up with the lender, not the government department.
For a detailed breakdown of what documents, you'll need for a business loan application, see Documents Required for a Business Loan.
How Shriram Finance Fits into Your Government Scheme Financing Plan
Government schemes make borrowing more accessible — but they don't replace the need for a strong application. Whether you're applying under CGTMSE, Mudra Yojana, or any other scheme, you still need a clear picture of your loan requirement, a clean repayment track record, and the right documentation.
If you want to understand what working capital financing looks like in practice — or how a business loan from an NBFC fits alongside government-scheme financing — Shriram Finance's team can walk you through your options.
To understand your loan options before committing, read about MSME business loan eligibility — or speak directly with a Shriram Finance advisor.
Frequently Asked Questions
How to apply for MSME loan from government?
You apply for most MSME loan scheme options through a participating bank or NBFC — not directly through a government department. The government's role is in setting the scheme framework: it may provide the credit guarantee (as in CGTMSE), subsidise the interest, or offer a capital subsidy (as in PMEGP). Start by registering your business on Udyam, then approach a lender that participates in the scheme relevant to you. For PMEGP specifically, you apply first through the KVIC portal (kviconline.gov.in) and then get routed to a bank for the loan.
Am I eligible for small business loan from the government?
Your eligibility depends on your business category, size, and the specific scheme. Broadly, if your manufacturing turnover is below ₹250 Crore* or your services turnover is below ₹100 Crore* (as defined under the MSMED Act 2006), you qualify as an MSME — which makes you eligible to apply under most government schemes for MSME financing. Beyond that, each scheme has its own conditions: Stand-Up India requires you to be an SC/ST entrepreneur or a woman; PMEGP is for new businesses, not expansions; Mudra Yojana covers micro and small units specifically. Run through the self-check checklist above to get a clear picture of where you stand.
Which government loan is best for business?
There's no single answer — the right government business loan scheme depends on your situation. If you need a small loan without collateral and you're running a micro business, PM Mudra Yojana's Kishore tier is likely your first call. If you're an established MSME needing a larger amount without a property pledge, CGTMSE-backed lending through an NBFC is worth exploring. If you're setting up a new business and want direct government subsidy, PMEGP is designed for that. Match the scheme to your profile — don't pick the most well-known scheme and assume it fits.
On which business government gives subsidy?
Government subsidies under government subsidy loan for business programmes are mostly available for manufacturing businesses, food processing units, handicraft businesses, and rural enterprises. PMEGP is the most explicit subsidy scheme: it offers 15%* to 35%* of project cost as a direct capital subsidy for new manufacturing and service businesses. Udyogini also offers subsidised or zero-interest loans for women entrepreneurs in certain trade categories. Most other schemes — Mudra Yojana, CGTMSE, Stand-Up India — do not provide interest subsidies but make lending more accessible through guarantees or lower collateral requirements.
Is there any Government loan for startup business?
Yes. If your startup is a manufacturing, trading, or services business — not necessarily a tech startup — PMEGP is specifically designed as a start-up business loan by Indian government framework, providing project financing with a direct capital subsidy. PM Mudra Yojana's Shishu tier (up to ₹50,000*) also works for very early-stage businesses. If your startup is registered under the Startup India scheme (DPIIT-recognised), you access a separate set of support mechanisms including the Fund of Funds and other SIDBI programmes — the Startup India portal is the right starting point for that track.
What is PM Modi loan scheme for small business?
The term "PM Modi loan scheme" is often used informally to refer to PM Mudra Yojana (Pradhan Mantri Mudra Yojana), which was launched by the Government of India to provide collateral-free loans to small and micro businesses through banks and NBFCs. The scheme operates through 3 tiers — Shishu (up to ₹50,000*), Kishore (up to ₹5 Lakh*), Tarun (up to ₹10 Lakh*) and Tarun Plus (up to ₹20 Lakh*) — and covers a wide range of business types including manufacturing, trading, and service enterprises. You apply through any participating bank or NBFC. Scheme details are published at mudra.org.in.