Government Business Loan Schemes 2026: PM Schemes Compared

The Government of India does not lend to businesses directly. Every "Pradhan Mantri small business loan" is a normal bank loan made cheaper or easier by a scheme: a capital subsidy (PMEGP), an interest subvention (PM Vishwakarma, PM SVANidhi), or a credit guarantee that replaces collateral (Mudra, CGTMSE). Choose the scheme that fits your stage and profile, then apply through a bank or the official portals.

All figures below are as of October 2026. Scheme terms change through Union Budgets and Cabinet decisions, so confirm the current rules on the official portal before you apply.

First, the myths: "business loan without interest" and "PMAY business loan"

Two of the most common searches rest on a misunderstanding.

There is no truly interest-free government business loan. Every scheme loan carries interest set by the lending bank. What a scheme can do is:

• Pay part of your project cost as a one-time subsidy (PMEGP), so you borrow and repay less.
• Pay part of your interest (interest subvention), so your effective rate drops. PM Vishwakarma borrowers pay 5% because the government covers up to 8 percentage points.
• Guarantee the loan to the bank (Mudra's CGFMU, CGTMSE), so you do not need property or a guarantor. This removes collateral, not interest.

If a caller, website or social media page promises a zero-interest "Modi loan" or "PM business loan" after you pay a file charge, treat it as a scam.

PMAY is a housing scheme, not a business loan. Pradhan Mantri Awas Yojana helps eligible families buy, build or improve a home, with subsidy linked to a home loan. It cannot be used to fund a shop, machine or stock. If you came looking for a "PMAY business loan", the schemes in the table below are the right place to look; our PMAY home loan subsidy guide covers what PMAY actually does.

Government business loan schemes compared

Mudra: the default first stop

Mudra loans are the most common business loan under a PM scheme. They are collateral-free, available to new businesses, and come in four slabs: Shishu up to ₹50,000, Kishore up to ₹5 lakh, Tarun up to ₹10 lakh and Tarun Plus up to ₹20 lakh (only after a Tarun loan is fully repaid). The interest rate is set by each lender. For the full picture, read our pillar guide to business loans and Mudra loans and the Mudra Tarun loan scheme explainer.

Mudra is the right fit when you need modest working capital or equipment, have little collateral, and do not qualify for a targeted scheme.

PMEGP: the only scheme with a large capital subsidy

The Prime Minister's Employment Generation Programme is run by the Ministry of MSME through KVIC, state KVIBs and District Industries Centres. It funds new units only. The government pays a subsidy (called margin money) of 15% to 35% of the project cost, depending on your category and whether the unit is in an urban or rural area. Your own contribution is 10% (general) or 5% (special categories such as SC/ST/OBC, women, minorities, ex-servicemen, persons with disabilities, NER, hill and border areas).

The approval for PMEGP's 2021-22 to 2025-26 cycle ran until 31 March 2026, and the government has told Parliament that continuation for the next five years was under appraisal. Check the KVIC portal for the current status before applying. Our PMEGP loan subsidy guide walks through eligibility and a worked subsidy example.

PM SVANidhi: small loans for street vendors

The Cabinet restructured PM SVANidhi in August 2025 and extended lending to 31 March 2030. Vendors now get a first loan of up to ₹15,000, a second of up to ₹25,000 after repaying the first, and a third of up to ₹50,000. Loans are collateral-free, regular repayment earns an interest subsidy, and digital transactions earn cashback. Vendors who repay the second loan can get a UPI-linked RuPay credit card for small emergency needs.

You need a vending certificate or letter of recommendation from your urban local body. Apply on the PM SVANidhi portal or through a bank or the municipal office.

PM Vishwakarma: 5% loans for artisans

PM Vishwakarma covers artisans and craftspeople in 18 traditional trades, such as carpenters, blacksmiths, potters, tailors, cobblers, barbers and goldsmiths. After registration and basic skill training, you can get a collateral-free Enterprise Development Loan of ₹1 lakh (repayable over 18 months) and later ₹2 lakh (30 months), at a concessional 5%. The government covers up to 8 percentage points of interest and the CGTMSE guarantee fee. The scheme also offers a toolkit incentive of up to ₹15,000 and a training stipend.

Registration happens through Common Service Centres with Aadhaar and verification by the gram panchayat or urban local body.

Stand-Up India and its successor

Stand-Up India helped SC/ST and women entrepreneurs set up a first (greenfield) enterprise with bank loans of ₹10 lakh to ₹1 crore, with the borrower bringing at least 10% of the project cost. The scheme was extended in line with the 15th Finance Commission period, to 31 March 2025, and the Union Budget announced a new term-loan scheme of up to ₹2 crore for first-time women, SC and ST entrepreneurs. Some bank pages still show the old Stand-Up India terms, so ask your bank which version it is currently sanctioning under.

CGTMSE: collateral-free larger loans

CGTMSE is not a loan scheme but a guarantee. When a bank covers your micro or small enterprise loan under CGTMSE, it does not need collateral or a third-party guarantor. The guarantee ceiling was raised to ₹10 crore from 1 April 2025. An annual guarantee fee applies, and banks either absorb it or pass it to you, so ask for it in the Key Fact Statement. Separately, RBI instructions bar banks from taking collateral on loans up to ₹10 lakh to micro and small enterprises.

Worked example: what a 5% scheme loan saves

Take a carpenter who borrows ₹1 lakh under PM Vishwakarma, repayable over 18 months, and compare it with a 13% loan from a small lender (illustrative rate).

At 5% (scheme rate):

• Monthly rate = 5 / 12 / 100 = 0.004167
• EMI = P × r × (1 + r)^n / [(1 + r)^n − 1] = ₹5,778
• Total interest over 18 months = ₹5,778 × 18 − ₹1,00,000 = about ₹4,005

At 13% (market rate):

• EMI = ₹6,145
• Total interest = about ₹10,606

The subvention saves about ₹6,600 on the first tranche. On the second tranche of ₹2 lakh over 30 months, the EMI is ₹7,106 at 5% against ₹7,844 at 13%, and interest falls from about ₹35,329 to about ₹13,176. That is cheaper money, but it is still not interest-free. Try your own numbers in the EMI calculator.

How to choose the right scheme

1. Street vendor? Start with PM SVANidhi.
2. Traditional artisan in a listed trade? PM Vishwakarma gives the lowest rate.
3. Starting a new manufacturing or service unit with a project report? Check PMEGP first for the subsidy, then Mudra if PMEGP is closed or you are ineligible.
4. Running or starting a micro business that needs up to ₹20 lakh? Mudra. See the list of Mudra-eligible businesses and how to apply for a Mudra loan for a new business.
5. SC/ST or woman entrepreneur needing ₹10 lakh or more? Ask your bank about Stand-Up India or its successor.
6. Need more than ₹20 lakh without collateral? A CGTMSE-backed MSE loan.

You cannot usually claim two capital subsidies for the same project. PMEGP, for example, excludes applicants who have already availed a subsidy under another central or state scheme.

Common mistakes

• Paying agents. Applications on Jan Samarth, the KVIC PMEGP portal, the PM SVANidhi portal and the PM Vishwakarma portal are free.
• Skipping Udyam registration. It is free and makes it easier to prove micro or small enterprise status.
• Borrowing more than the cash flow supports. A scheme loan is still a loan; default hurts your CIBIL score and blocks later tranches.
• Assuming approval is automatic. Banks still appraise your credit history and plan. If you are turned down, see why Mudra loans get rejected.

Key takeaways

• Every government business loan is a bank loan; the scheme adds a subsidy, an interest subvention or a guarantee.
• No scheme offers a truly interest-free business loan; PM Vishwakarma at 5% is among the cheapest.
• PMAY is a housing scheme and does not fund businesses.
• PMEGP gives the largest capital subsidy (15% to 35%) but only for new units, and its post-March 2026 continuation should be confirmed on the KVIC portal.
• Mudra (up to ₹20 lakh) and CGTMSE (up to ₹10 crore) remove the need for collateral but not interest.
• Apply only through banks and official portals; never pay a "processing agent".