When it comes to starting or growing a business, finding accessible and affordable financing is usually the critical point. In India, there are several government-backed business loan schemes that can help entrepreneurs access institutional credit more easily, overcome financing hurdles and even receive subsidies or credit guarantees.
But not every business loan from the government is ideal for every business owner. Choosing the right scheme depends on several factors including your business model, amount needed, eligibility criteria and whether you want to start a fresh venture or expand.
Here are some of the major government-backed business loan options to know about in 2026:
1. PM MUDRA Yojana: For Small Businesses
India’s PM MUDRA Yojana focuses its efforts on micro and small-scale businesses. The scheme supports institutional credit for working capital as well as term-loan requirements.
PMudra has four categories based on the loan amount:
- Shishu: Up to ₹50,000
- Kishore: Above ₹50,000 to ₹5 lakh
- Tarun: Above ₹5 lakh to ₹10 lakh
- Tarun Plus: Above ₹10 lakh to ₹20 lakh, available to entrepreneurs who have successfully repaid an earlier Tarun loan.
As with all MUDRA loans, these don’t require collateral under the scheme. They can be used to fund non-agricultural businesses as well as some agriculture allied business activities such as dairy, poultry and beekeeping.
Best suited for: Small shops or service businesses, micro businesses and entrepreneurs that need relatively small amounts of business capital.
2. PMEGP: Loan Plus Subsidy for New Enterprises
Another scheme to look for if you’re planning to start a new micro enterprise is the Prime Minister’ s Employment Generation Programme – PMEGP.
Under the latest guidelines, PMEGP allows a maximum project cost of ₹50 lakh for manufacturing projects. Business/service projects are limited to ₹20 lakh. The bank provides finance for the remaining eligible project cost after accounting for the beneficiary’s contribution and applicable subsidy as per the scheme structure.
The subsidy rates vary depending on who you are and whether your micro enterprise is based in an urban or rural area. Certain special-category beneficiaries (SCBs), including those belonging to eligible groups in the North Eastern Region, can avail even higher subsidy rates.
One advantage of PMEGP is that it’s not simply a cheap loan program. Eligible entrepreneurs can avail both bank finance as well as a government margin money subsidy, making it particularly helpful for new micro enterprises.
Best suited for: First-time entrepreneurs looking to setup new manufacturing, service or other micro enterprises that meet eligibility criteria.
3. Stand-Up India: Larger Loans for Eligible Entrepreneurs
Stand-Up India is an entrepreneurship promotion scheme for Scheduled Caste (SC) and Scheduled Tribe (ST) entrepreneurs as well as women entrepreneurs.
Under Stand-Up India, eligible greenfield enterprises can apply for loans from ₹10 lakh to ₹1 crore for manufacturing, service, trading, and agriculture-allied activities. Loan repayments can be spread out for up to seven years, including a moratorium period of up to 18 months.
Prospective borrowers should confirm the scheme’s current operational status and read official government instructions before applying. This is because the original Stand-Up India scheme was initially linked to the tenure of the 15th Finance Commission – since passed – and the government later announced that a new scheme would be introduced for first-time entrepreneurs.
Best suited for: Eligible women and SC/ST entrepreneurs looking for much larger amounts of funds to start a business.
Which Government Business Loan Is Right for You?
It’s important to remember that the total loan amount isn’t the sole consideration. Consider what you plan to use the money for first.
| Your requirement | Scheme worth considering |
|---|---|
| Up to ₹50,000 | MUDRA Shishu |
| ₹50,000–₹5 lakh | MUDRA Kishore |
| ₹5–₹10 lakh | MUDRA Tarun |
| Up to ₹20 lakh after successful Tarun repayment | MUDRA Tarun Plus |
| New micro enterprise + subsidy | PMEGP |
| ₹10 lakh–₹1 crore for eligible SC/ST or women entrepreneur | Stand-Up India |
What to Prepare Before Applying
A government-backed loan doesn’t automatically ensure your application will sail through. Most lenders will still evaluate your business plan and ability to repay.
Prepare a feasible business plan with project cost, expected revenue, cash-flow projections, KYC documents, bank statements and all relevant registrations (udyam registration, if applicable) before applying. Be sure to review the official government websites for each scheme too. PMEGP’s official site warns applicants that KVIC/ KVIB/DIC/Coir have not engaged any private middlemen to sanction PMEGP assistance, for instance.
Final Takeaway
Government business loans can provide more than just funds. Depending on the scheme, you could benefit from institutional credit combined with subsidy support or credit facilitation. These programs exist to help lower the financial barriers entrepreneurs face when starting a business.
MUDRA loans could be a good first step for a small business. PMEGP is great for new entrepreneurs that qualify for the subsidy on a new micro enterprise. Stand-Up India can help eligible women and SC/ST entrepreneurs access higher amounts of funding. But make sure the schemes are currently accepting applications and that you meet the eligibility requirements before applying.