By Saurav Most first-time entrepreneurs in India assume the biggest hurdle to a business loan is proving the idea works. Often it’s something more mundane — the bank asking for property papers or gold as security, something a 24-year-old founder fresh out of college simply doesn’t have. The good news is the government has spent the last decade building an entire funding architecture specifically designed around that gap. India now has over 2.15 lakh DPIIT-recognised startups, and a genuinely wide stack of schemes that skip the collateral requirement entirely. Here’s what’s actually available.
Pradhan Mantri Mudra Yojana (PMMY)
MUDRA is the most accessible entry point in this entire ecosystem, and deliberately so — it requires no DPIIT recognition, no minimum turnover, and no collateral at any tier.
- Shishu: Up to ₹50,000, aimed at very early-stage or first-time entrepreneurs
- Kishore: ₹50,001 to ₹5 lakh, for businesses with some operational history
- Tarun: ₹5 lakh to ₹10 lakh, for more established ventures
- Tarun Plus: ₹10 lakh to ₹20 lakh, a newer category introduced for repeat borrowers with a good repayment track record
- Available through public and private banks, NBFCs, MFIs, and regional rural banks, or applied for directly via the JanSamarth portal
- Interest rates aren’t fixed centrally — they’re set by the lending institution based on RBI guidelines, so it’s worth comparing offers across a few banks
Startup India Seed Fund Scheme (SISFS)
Technically a grant rather than a loan, SISFS deserves mention here because it’s often the first funding a genuinely early-stage, DPIIT-recognised startup receives.
- Offers up to ₹20 lakh as a non-repayable grant, typically for proof-of-concept or prototype development
- An additional ₹50 lakh is available as convertible debt for market entry and scaling once the concept is validated
- Applications go through an empanelled incubator, not directly to the government, via seedfund.startupindia.gov.in
- Since it’s grant-based rather than a loan, it doesn’t compete with or replace collateral-free debt options — many startups use SISFS alongside MUDRA
Stand-Up India Scheme
Stand-Up India targets a specific and often underserved group of entrepreneurs, offering meaningfully larger loan amounts than MUDRA.
- Loan amounts range from ₹10 lakh up to ₹1 crore, extended for greenfield (new) enterprises specifically
- Exclusively for women entrepreneurs and SC/ST business owners, unlike MUDRA which is open to all categories
- Run jointly by the government and SIDBI, covering manufacturing, trading, and services businesses
- Repayment tenure typically extends up to 7 years, with a moratorium period built in before EMIs begin
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
CGTMSE doesn’t lend money directly — it guarantees a portion of the bank’s risk, which is precisely what convinces lenders to skip collateral.
- Covers loans up to ₹10 crore for standard MSEs, with the guarantee trust absorbing 75-85 percent of the bank’s loss on default
- Interest rate concessions of 0.5-1 percent are often available specifically for women-led startups
- Doesn’t require you to apply to CGTMSE directly — your bank applies for the guarantee on your behalf once your loan is structured to qualify
- Startups should explicitly ask their bank about CGTMSE coverage, since many lenders default to requesting collateral unless a borrower specifically raises it
Credit Guarantee Scheme for Startups (CGSS)
CGSS extends the same collateral-free guarantee logic as CGTMSE, but specifically for DPIIT-recognised startups seeking larger amounts.
- Provides collateral-free credit guarantee cover up to ₹20 crore, considerably higher than CGTMSE’s standard ceiling
- Requires formal DPIIT Startup India recognition as a prerequisite, unlike MUDRA which doesn’t
- Designed for startups that have moved past the seed stage and need working capital or term loans without pledging assets
- Works through the same principle as CGTMSE — the government guarantee sits with the lending bank, reducing its risk exposure
Prime Minister’s Employment Generation Programme (PMEGP)
PMEGP is specifically structured for setting up new micro-enterprises, with a built-in subsidy component that reduces the effective loan burden.
- Offers project-based financing with a government subsidy of 15-35 percent depending on category and location, with the balance financed as a bank loan
- Exclusively for new enterprises — existing businesses aren’t eligible and should look at MUDRA Tarun or CGTMSE-backed loans instead
- Rural applicants and applicants from special categories (women, SC/ST, ex-servicemen) receive higher subsidy percentages
- Applicants cannot simultaneously avail PMEGP alongside certain other schemes like PM Vishwakarma, so check overlap restrictions before applying
Fund of Funds for Startups (FFS)
FFS operates differently from the direct-lending schemes above — it’s a ₹10,000 crore corpus that invests into startups indirectly through registered venture capital funds.
- Rather than lending to startups directly, FFS provides capital to SEBI-registered Alternative Investment Funds, which then invest in individual startups
- Has mobilised over ₹25,500 crore into more than 1,370 startups through 145 AIFs since inception
- Best suited for startups pursuing equity funding rather than debt, so it sits somewhat apart from the collateral-free loan schemes but remains part of the broader government funding stack
- A newer ₹10,000 crore Fund of Funds 2.0 has been introduced specifically targeting sectors like AI and deep tech
SIDBI SMILE (SIDBI Make in India Loan for Enterprises)
SIDBI SMILE fills a specific gap for startups needing growth capital that doesn’t fit neatly into the smaller MUDRA brackets.
- Offers larger ticket sizes than MUDRA, aimed at manufacturing and service-sector startups with genuine growth potential
- Structured with softer collateral requirements than conventional bank loans, often working alongside CGTMSE guarantee coverage
- Particularly relevant for startups that have outgrown MUDRA’s ₹20 lakh ceiling but aren’t yet ready for larger institutional debt or venture funding
- Applied for directly through SIDBI or its network of partner lending institutions
Frequently Asked Questions
Q1. Do I need DPIIT recognition for all these schemes?
No. MUDRA and PMEGP don’t require it. SISFS, CGSS, and Fund of Funds specifically require DPIIT-recognised startup status.
Q2. Can I combine multiple schemes at once?
Yes, generally. SISFS and MUDRA can run simultaneously since one’s a grant and the other’s a working capital loan. Some schemes, like PM Vishwakarma, explicitly exclude concurrent MUDRA or PMEGP loans.
Q3. What’s the fastest scheme to get approved?
MUDRA Shishu is the most accessible — no collateral, no minimum turnover, available at nearly any bank with minimal documentation.
Q4. Is Udyam Registration mandatory for these schemes?
It’s not always mandatory, but it’s increasingly treated as the standard digital identity for accessing government-backed loans and priority sector lending rates.