SIDBI Loan Schemes and Application Steps for Startups in India

What is SIDBI? 

Small to medium-scale industries occupy a substantial position in the development of India’s economy. According to a report by Harvard Business Review, SMEs contribute 45% of India’s industrial output. Spearheading support toward MSMEs is SIDBI or the Small Industrial and Development Bank of India. 

SIDBI’s focus lies on three core principles which include promoting, financing, and developing the small-scale industries in India. Apart from funding the many needs of the SMEs, it also provides refinancing to lending institutions for providing funds to micro and small enterprises. 

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Importance of SIDBI for MSMEs

Keeping up with the highly fast-paced business world can be a challenge for MSMEs. SIDBI can overcome these challenges. It acts as a solid support system, providing a range of financial and non-financial services to small and medium enterprises throughout the country. 

The importance of SIDBI can be highlighted through the points below:

• SIDBI includes both direct (Loans are given directly to MSMEs) and indirect lending (SIDBI offers loans to banks and then banks lend to MSMEs) alternatives. 
• Procuring collateral-free loans with flexible repayment options is possible with SIDBI. 
• Through its promotional initiatives such as arranging industry visits to MSMEs for emerging entrepreneurs for exposure or appreciating upcoming and potentially successful MSMEs with the SIDBI-ET India MSE Award, it creates a safe space for budding startups to bloom. 
• Builds employment opportunities in semi-urban areas by supporting employment generation programs and industries. 
• Promotes the entrepreneurial spirit by providing networking opportunities and fosters innovation through initiatives like the Startup India Initiative. 

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SIDBI Loan Schemes for Startups

Recognizing financial ordeals at every stage of business, SIDBI has designed various loan schemes for startups and young entrepreneurs which are described below: 

1. Express 2.0 - Quick term loan approval for MSMEs

The USP of the Express 2.0 scheme is its quick loan approval process for term loans. Startups and MSMEs in the manufacturing and services sector, which are at a nascent stage, must consider this scheme as it offers a loan amount of Rs. 1 crore with a tenure of five years. The eligibility criteria to avail of funding include:

• Possessing Udyam and GST registration documents.
• Businesses with a minimum operational history of three years. 

2. SAATH - Loan assistance for MSMEs promoted by SC/STs

SAATH or SIDBI Assistance & Aid for Thematic Support provides loans specifically to scheduled castes and scheduled tribes. Empowering startups from the SC/ST sector, the SAATH scheme by SIDBI offers quick loan assistance with a loan amount ranging from Rs. 25 lakhs to Rs. 3 crores, sans any repayment charges. SIDBI also bears 50% of the credit guarantee fees. Check its eligibility criteria below:

• Promoters must have at least a 51% stake in the company. 
• Startups must be registered under the MSME Act.
• Companies must not have defaulting records with banks and financial institutions.
• Promoters of the company must be from the SC/ ST category.

3. ARJANA - Loan for MSMEs with women entrepreneurs

MSMEs led by women entrepreneurs, operating in the manufacturing sectors can apply for the ARJANA scheme. Let’s have a look at its features:

• The loan amount ranges from Rs. 25 lakhs to Rs. 3 crore. 
• Startups must be registered under the MSME Act.
• No previous default with banks and financial institutions/
• The women entrepreneur must have a minimum stake of 51% in the company. 

4. STEP - Term loan to enhance MSMEs’ production capacity

Working capital needs form a major reason why startups need funding. STEP or SIDBI Term Loan to Enhance Production of MSMEs does just that! It helps startups meet their working capital requirements during the production process, ensuring they easily execute confirmed orders. The following are its features: 

• Loans are sanctioned within 2 days without processing fees. 
• STEP loans come with a repayment tenure of 3 years, including a moratorium period. 
• Startups must not have previous debt defaults.
• Micro startups need to showcase a profit in the last two financial years.  
• The minimum operational years for new applicants is 3 years.
• Existing customers must have been operational for at least 2 years.

What is a moratorium period? 

A moratorium period can be described as a pause in EMI payments, during the start of the repayment period of a loan. In other words, the borrower doesn’t have to immediately start paying the loan after it is disbursed. However, the interest continues to accrue even during the payment break. Lenders also term it as an ‘EMI Holiday’.

5. Ubharte Sitaare - Loan targeting MSMEs with export potential

This scheme under SIDBI, targets potential export companies by providing funds for land, building, and machinery investments, among others. It provides a maximum funding of 80% of the cost of the project with a repayment tenure of 6 years. However, this can be extended to 10 years with a moratorium period of up to 2 years. The sectors under the Ubharte Sitaare scheme include: 

• Aerospace and Defence
• Automobiles
• Chemicals
• Food processing
• Precision Engineering 
• IT and Information Technology Enabled Services 
• Pharmaceuticals
• Textiles and Allied Sectors

To avail of this scheme, the company should take a due diligence check by CIBIL.  

6. STHAPAN - Assistance for capital assets in new enterprises

The STHAPAN scheme assists new startups in acquiring assets and overall infrastructural developments. It stands for SIDBI Thematic Assistance for Purchase of Capital Assets and provides financial assistance to new enterprises for purposes that include: 

• Establishing an enterprise from scratch
• Investing in land and equipment
• Construction of new factory buildings

This scheme provides a maximum funding of Rs. 20 crores or 75% of the project cost, whichever is lower along with an interest rate of 2.20-3.50%. The repayment tenure is seven years, including a moratorium of two years. Let’s look at its eligibility criteria:

• Promoter’s contribution to the company should be a minimum of 25%. 
• The MSME must be operational for at least 5 years. 
• Companies must do a mandatory diligence check by CIBIL. 

7. ARISE - Foreign currency and regular-term loans for SMEs

ARISE, or Assistance to Re-Energize Capital Investments for SMEs is a SIDBI scheme that provides foreign currency and regular term loans. This scheme supports the growth and expansion of startups by providing access to international financial alternatives. The following are its features and eligibility criteria:

• The maximum loan amount is 7 crore or 80% of the project cost, whichever is lower.
• Interest rates range from 1.70%-3%, with an additional repo rate from the first year.
• The repayment period is 7 years, including a two-year moratorium period.
• The minimum contribution by the promoter to the company must be 25%.
• The operational period of the company must be at least 2 years. 

8. STAR - Assistance for rooftop solar PV plants

This SIDBI scheme promotes the idea of sustainable industrial functioning. It helps companies establish rooftop solar photovoltaic plants by helping companies reduce their electricity bills. It stands for SIDBI Term Loan Assistance for Rooftop Solar TV Plants and the following are its features: 

• Funding amounts range from Rs. 10 lakhs to Rs. 3.5 crore under this scheme.
• The STAR scheme offers 100% financing and direct payment to suppliers.
• The repayment period is 5 years, including a moratorium period of 6-12 months. 

To be eligible for this scheme, the business must showcase a profit of at least two years. For new companies, an operational history of three years minimum is mandatory. Also, the maximum funding available for companies is 25% of the company’s net sales. 

9. TULIP - Top-up loans for immediate financial needs

TULIP Abbreviates to Top-Up Loans for Immediate Financial Needs. This scheme provides quick top-up loans to startups to address their urgent financial needs. This scheme provides 100% financing without collaterals, except for a 10% fixed deposit that decides the availability of this feature. The loan can be repaid in 5 years, which includes a moratorium period of six months. 

To be eligible for this scheme, you need to be associated with the SIDBI scheme for at least 1 year. Ensure that your business is profitable for one year before applying. Also, the purpose of your loan must be at par with the business line.

10. Speed - Loan for equipment purchase from OEMs

SIDBI signs MoUs with many original equipment manufacturers (OEMs) that sell machinery and equipment to startups for development. Companies can buy from these manufacturers under the SIDBI for Purchase of Equipment for Enterprise’s Development scheme. To avail of loans under the SPEED scheme, the company must have been operational for at least three years and must showcase its profitability for the previous 2 years from the date of applying. 

The following are its features:

• Repayment tenure under this scheme ranges from two to five years, including a moratorium period of 6 months or less. 
• The maximum funding amount can be 100% of the machinery cost or Rs. 1 crore, whichever is less.

11. Speed Plus - Machinery purchase loans from OEMs

Speed Plus assists MSMEs in purchasing machinery directly from OEMs (Original Equipment Manufacturers). Through this scheme, companies can be assured of high-quality machinery and equipment. Let’s have a look at its features and eligibility criteria:

• Interest rates of Speed Plus depend on the MCLR.
• Repayment tenure is 7 years, including a 6-12 month moratorium period.
• The funding amount provided for new companies is 100% of the machinery if the purchase price is Rs. 2 crores. For existing companies, the amount is Rs. 3 crores. 
• The minimum operational period must be 5 years. 
• The minimum net sales of the company for the last 2 years must be Rs. 5 crores, excluding operating loss. 

12. PRATHAM - Hybrid or alternate security model loans

Businesses looking to leverage different forms of collateral to secure financing can choose the PRATHAM scheme. It stands for Priority Assistance to MSMEs based on the Hybrid or Alternate Security Model. MSMEs under this scheme can buy ancillary equipment, and purchase new & refurbished machinery with a maximum funding available at 10% of the machinery cost or Rs. 200 lakhs, whichever is lower. The following are the scheme’s features: 

• This funding amount also depends on the 30-40% of the FD provided. 
• The interest rate is MCLR-linked and the repayment tenure is 5 years, including a moratorium period of 6-12 months. 
• The MSME must be operational for at least 3 years.
• Startups must demonstrate profits of the previous 3 years. 

13. Working Capital 

Enabling startups to meet their day-to-day expenses, this scheme offers immediate funds with the following criteria:

• The asset coverage ratio is set at 1.3 for existing companies, and 1.4 for new ones.
• The minimum interest coverage ratio is 1.5.
• At the time of applying for loans through this scheme, startups must have a current ratio of 1.25.

A major advantage of this scheme is that it is available for MSMES who have an outstanding loan with banks or banks that have submitted loan applications. 

14. SMILE - Soft loans for 25 target sectors

The objective of this scheme is to provide affordable financing options to MSMEs in 25 target sectors. It includes construction, aviation, textiles and garments, roads and highways, and railways. Under this scheme, startups can avail two types of loans:

Quasi-Equity Loans: Minimum funding amount available here is Rs. 10 lakhs for equipment purchase and Rs. 25 lakhs for other purposes. Interest rates for these loans range from 9.15% to 9.35% for the 1st 3 years. 

Term Loans: Minimum funding for new customers is Rs, 50 lakhs and for existing ones, it is Rs. 25 lakhs with an interest rate ranging from 9.45% to 9.95% for the 1st three years. 

To be eligible for this scheme, your startup must have a minimum promoter contribution of 15%. This is subjected to a maximum debt-to-equity ratio of 3:1 with a repayment period of 10 years, which includes a 36-month moratorium period.  

15. Partnership with OEMs

For companies seeking direct purchase of machinery and equipment from original equipment manufacturers, this scheme is appropriate. It offers loans up to Rs. 1 crore with a simplified disbursement process. However, the loan amount can increase under specific situations and guidelines issued by the bank or lending institutions. Check its eligibility criteria and features below:

• Minimum operational tenure of 3 years is required. 
• Companies must possess accurate financial statements.
• Interest rate follows the guidelines of the SIDBI SMILE scheme.
• The repayment tenure of such loans can extend up to 60 months.

Operating along the same lines as these schemes, platforms like Recur Club are changing the way debt financing works. Recur Club offers innovative, fast and smart financing solutions to startups and MSMEs, tailored to their needs. Learn more about Recur Club here. 

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SIDBI Schemes Involving Indirect Financing

Apart from direct finance, SIDBI also offers indirect financial assistance through the following schemes:

1. Refinance Scheme for MSEs

The central objective of this scheme is to provide refinance assistance to PLIs (Prime Lending Institutions) that lend funds to MSMEs. SIDBI, through this scheme, refinances a portion of the loans provided by lending institutions to encourage them to lend more to MSMEs. This scheme can be classified into two types: 

• RMSE X||- Regular: Comes with a repayment period of 5 years with the loan amount depending on the paying capacity of the startup.
• RMSE X||-ICDD: This type provides refinance assistance for specific initiatives or projects.  

The interest rate for refinancing is linked to the 10-year government bond yield. 

2. SIDBI Revolving Fund for TIFAC

TIFAC abbreviates to Technology, Information, Forecasting, and Assessment Council, which are sectors that this scheme covers. Under this scheme, SIDBI provides refinancing assistance to PLIs for lending to MSMEs for the above sectors. The TIFAC scheme improves the competitiveness of MSMEs by fostering innovation and promoting research & technological advancements. It does so by providing: 

• Funding of over Rs. 1 crore per unit.
• A repayment period of six years, including a moratorium 
• A 5% p.a. cap on the interest rate. 

3. Receivable Finance Scheme

Under this scheme, refinancing assistance is provided to PLIs for discounting of factoring of receivables for MSMEs. Founders can sell their invoices or bills at a discounted rate to PLIs, thereby enhancing their cash flow and meeting operational expenses. Startups that experience delayed payments can leverage the benefits of this scheme. The funding limit is set at Rs. 50 crores for large-scale projects.

4. Refinance for Export Purpose (RAMPE)

RAMPE (Refinance Assistance to MSMEs for the Purpose of Export) provides financial support to PLIs that lend to export companies at competitive interest rates, facilitating the growth of export-oriented startups and MSMEs. Simplifying funding for export companies, this scheme aims to improve the export performance of the country. The repayment period under RAMPE can exceed five years with a funding limit set by SIDBI for each bank. It covers both pre-shipment and post-shipment finance for exports. 

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Steps to Apply for SIDBI Loan

Following is the process for applying for a SIDBI loan:  

1. Visit SIDBI's Official Website

Begin the loan application process by visiting SIDBI’s official website. Navigate the multiple loan options available, their eligibility criteria, and the application process. If you are an existing user, you can login using your id and password and click on the ‘login’ button and in case, if you’re a new user, you can create an account by registering with necessary details. 

2. Select the Suitable Loan Scheme

From equipment financing to MSMEs, SIDBI provides loans for every startup’s needs. After browsing through the different loan schemes, find a suitable loan for your business. Then, click on the 'Borrower's Corner' tab. 

3. Fill out the Loan Application Form

After selecting the loan that matches your business needs, fill out the loan application form. Go to the next page and click on 'Online Loan Application’ under the ‘Borrowers Tab’. Founders must meticulously enter complete and accurate details to prevent re-application or rejection of the application. 

4. Upload the Required Documents

To continue further with the process, upload necessary documents like business profiles, bank statements, financial statements, and other KYC documents like Udyog Aadhar memorandum and GST registration. 

5. Submit the Application

Once the application is filled and the documents are attached, re-check the details twice before finally submitting the loan application for review. 

6. Loan Assessment and Approval Process

Upon submission of the application, it will be assessed along with evaluating your business’s creditworthiness and financial health. If the application is approved, the SIDBI will disburse the loan and the amount will be credited to your account. 

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Documents Required for SIDBI Loan Application

When applying for a SIDBI loan, you need the following documents:

1. Application Form

The process of applying for a SIDBI loan begins with an application form. It contains details about the business, loan amount, and the purpose of obtaining loans, which must be carefully filled in to process the application successfully. 

2. KYC documents

To verify your business identity, KYC documents are a prerequisite. They include government-issued identification like Aadhar cards, passports, PAN cards, and address proofs among others. This is a mandatory step expected to be compiled before all financial institutions to prevent fraud and ensure utmost transparency. 

3. Business Profile

A well-structured business profile will help determine your business’s viability and potential. It outlines relevant details about your business including:

• Nature of your business
• Target market & competitors
• Products or services offered by your business
• History of operations 
• Business model 

This business profile document offers a detailed description of your business to lenders. Hence, the necessary information must be displayed precisely. 

4. Financial Statements

This document presents the profitability of the business and includes:

• Balance sheets
• Profit and loss accounts
• Cash flow statements of the past few years 
• Revenue and expenses 

These statements provide valuable insights to lenders to evaluate your loan eligibility.

5. Bank statements

Bank statements of the last 6-12 months are required to assess your startup’s cash flow and banking history. It helps lenders obtain a fair idea of your ability to repay the loan.

6. Udyog Aadhaar Memorandum

For startups to qualify as an MSME, they need a proof document, which is the Udyog Aadhar Memorandum. It is a crucial document to avail various benefits and schemes, framed specifically for small enterprises and is operated by the Ministry of Micro, Small, and Medium Enterprises. 

7. GST Registration

A GST registration is a mandatory certificate, stating that your business complies with tax regulations, particularly for businesses engaged in sales and services. This document shows your startup’s adherence to tax laws and reflects its legitimacy. 

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Benefits of SIDBI Loan Schemes

1. Low Interest Rates

SIDBI makes it easier for startups and MSMEs to fulfill working capital requirements as they come with lower interest rates than many other financial institutions. SIDBI loans can offer low interest rates due to their international finance partners.  

2. Loans Without Collaterals

SIDBI loans offer collateral-free finance, which benefits MSMEs and startups with limited assets. Entrepreneurs can raise capital to Rs. 1 crore without pledging their assets. For this very reason, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established. 

3. Enjoy Complete Ownership

With SIDBI, startup owners can retain complete ownership over their business. These loans do not intrude on managerial decisions and focus solely on the performance and repayment of the loan. 

4. Transparent Loan Procedures

The application procedures for SIDBI loans are efficient, meaning startups have access to quick finance with a transparent process. The process is simple:

• Log on to the portal or mobile app
• Upload necessary documents
• Evaluate credit score 
• Submit the application
• Track loan application status 

SIDBI loans also make processing fees and interest rates transparent with no hidden charges. Working on a similar tangent is Recur Club, a debt marketplace that provides quick business loans to startups with speed, transparency, and reliability.  

5. Special Guidance

The benefits of SIDBI loans supersede mere financial assistance. SIDBI loans also provide valuable mentorship and guidance to entrepreneurs on crucial industry matters such as technology adoption, skill development programs, project management, and market research. This guidance encourages entrepreneurs to thrive in the competitive startup ecosystem. For instance, through programmers like Udyami Mitra, SIDBI promotes the entrepreneurial mindset among the youth. 

6. Customized Business Loans

SIDBI loans cater to the diverse needs of small businesses and startups by providing customized MSME loans. This personalization is an added advantage for businesses choosing this mode of financing. 

7. Government Subsidies

SIDBI loans provide government subsidies to MSMEs, designed to facilitate their development in areas such as technology upgradation and skill development. These subsidized loans come with a lower interest rate and simple terms and conditions. 

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Final Takeaway

To thrive in the competitive entrepreneurial market, MSMEs and startups of all stages need funding. This is where SIDBI is ticking all the right boxes! With an array of loan schemes, SIDBI ensures that MSMEs grow and expand in the most optimum manner. From machinery loans to working capital, SIDBI provides significant support to MSMEs by acknowledging the various stages and purposes of funding. 

Not only do these loans meet quick capital needs, but also empower MSMEs to expand and innovate without worrying about funding requirements. However, keeping up with the current trends of the digital world, SIDBI loans minimize paperwork and reduce processing times, enabling businesses to procure funds quickly and prioritize focus on operational efficiency. 

Working on parallel lines are platforms like Recur Club, which has democratized funding for Indian founders. It is India’s largest debt marketplace, offering quick startup loans to realize their full potential and not let a dearth of funding become the reason for close operations. With a network of 125+ lenders, they ensure that your business has the required resources to succeed in today’s dynamic business world. 

If this feels overwhelming, talk to our capital experts today at Recur Club and get all the information you need! 

FAQs

1. What is the full form of SIDBI and when was it established?

SIBI, also known as Small Industries Development Bank of India was established on April 2, 1990. 

2. Does SIDBI evaluate a micro business’s credit record when providing an MSME loan?

As part of its assessment process, SIDBI evaluates a micro business’s credit card when providing an MSME loan. 

3. What papers do I need to apply for a business loan with SIDBI?

To apply for a business loan with SIDBI, you would need the following documents:

• Identity, residence, and business address proof of the applicant.
• Business Plan
• Udyog Aadhar Memorandum (UAM) registration.
• Tax Returns
• Financial Statements
• Aadhar Card, PAN card

4. Who is eligible to apply for a SIDBI loan?

SIDBI loans are available for MSMEs, startups, and existing businesses, or businesses with a viable project proposal.

5. Does SIDBI provide MUDRA loans?

Mudra Loans is a SIDBI subsidiary that provides micro-enterprises loans through the Pradhan Mantri Mudra Yojana (PMMY) scheme. 

6. What types of loans does SIDBI provide?

SIDBI provides various types of loans including term loans, mudra loans, working capital loans, equipment financing, and microfinance.

7. What are the subsidiaries of SIDBI?

SIDBI Venture Capital Limited, SIDBI Foundation for Micro Credit, SIDBI Trustee Company Limited. 

8. Is SIDBI regulated?

Yes. It is regulated by the Reserve Bank of India (RBI) and operates under RBI guidelines issued for financial institutions.

9. Can SIDBI help MSMEs with debt restructuring or rehabilitation?

Yes, SIDBI assists financially distressed MSMEs with debt restructuring and rehabilitation programs, to stabilize them and improve cash flow.

10. What is the interest rate charged by SIDBI for its financial products?

The interest rates vary with different SIDBI schemes and loans. Generally, interest rates can range from 8%-12% per annum, depending on various factors. Some loan schemes also charge processing fees.