Money is one of the biggest worries for new entrepreneurs. The right funding depends on how much you need, how fast you want to grow and how much risk you are willing to take.
1. Bootstrapping
Most small businesses start with the owner's savings and early revenue. Bootstrapping keeps you in full control and forces discipline. Start lean, test demand before investing heavily and reinvest profits.
2. Friends and family
Common in India, but treat it professionally: put terms in writing, whether it is a loan or a share in the business, to protect relationships.
3. Pradhan Mantri Mudra Yojana (PMMY)
Mudra loans are offered by banks, NBFCs and microfinance institutions to non-farm micro and small businesses for manufacturing, trading and services, and are generally given without collateral.
| Category | Loan amount |
|---|---|
| Shishu | Up to ₹50,000 |
| Kishore | Above ₹50,000 up to ₹5 lakh |
| Tarun | Above ₹5 lakh up to ₹10 lakh |
| Tarun Plus | Above ₹10 lakh up to ₹20 lakh, for borrowers who have successfully repaid earlier Tarun loans |
Apply at your bank branch or through the government's online lending portals with a simple business plan, KYC documents, business proof such as Udyam registration and quotations for equipment.
4. CGTMSE: collateral-free loans
The Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees loans given by banks to micro and small businesses, so lenders can offer credit without collateral or third-party guarantees. The guarantee limit was increased in the 2025 Union Budget. A Udyam registration helps you access this.
5. Stand-Up India
Supports at least one Scheduled Caste or Scheduled Tribe borrower and one woman borrower per bank branch with loans between ₹10 lakh and ₹1 crore to set up new (greenfield) enterprises in manufacturing, services, trading or allied agriculture.
6. PMEGP
The Prime Minister's Employment Generation Programme offers a capital subsidy on bank loans for new micro enterprises, with higher subsidy rates for rural areas and special categories such as women, SC/ST and others. It is implemented through KVIC, state KVIBs and District Industries Centres.
7. State government schemes
Many states, including Tamil Nadu, run their own schemes for new entrepreneurs, women, youth and specific sectors, with subsidies, interest subvention and training. Visit your District Industries Centre (DIC) for details.
8. Investors
Angel investors and venture capital suit businesses aiming for rapid, large-scale growth, usually with a private limited structure. Most small businesses do not need, or want, outside investors early on.
How to improve your chances of a loan
- Maintain a clean credit score and repay personal loans and cards on time.
- Keep proper books and file GST and income tax returns regularly.
- Route all business income through your current account.
- Prepare a simple business plan with expected costs, sales and repayment.
- Borrow only what you can repay comfortably.
In the final part, we put together a tax and compliance calendar.
Start a Small Business in India: the full series
- Part 1: Choosing Your Business Structure
- Part 2: Registrations and Licences Checklist
- Part 3: Udyam (MSME) Registration
- Part 4: GST Registration and Composition Scheme
- Part 5: Bank Account and Digital Payments
- Part 6: How to Price Your Products and Services
- Part 7: Invoicing and Bookkeeping
- Part 8: Getting Your First Customers
- Part 9: Funding and Government Loan Schemes (you are here)
- Part 10: Taxes and Compliance Calendar
Disclaimer: This article is for general information only and is not legal, tax or financial advice. Rules, limits and fees change from time to time, so please check official government portals and consult a chartered accountant or company secretary for your specific situation.
