Small Scale Industries play a very vital role in the national economy. They help in generating employment with minimum possible investment and play a very vital role in promoting exports. Therefore, the Government has announced various schemes and policies for the promotion of Small Scale Industries to ensure that control over production is widely distributed. As per the present definition, an industry having investment of upto Rs. 1 crore in plant and machinery is defined as Small Scale Industry.
The advances to SSI are considered as Priority Sector Advances by banks. As per RBI guidelines, 40 % of the advances of nationalsed bank should be to Priority Sector. Thus SSI Units are given priority in bank finance. Further, RBI has announced that collateral security will not be insisted for loans by banks upto Rs. 5 Lakhs.
Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own Micro and Small Enterprise (MSE). Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector.
Any collateral / third party guarantee free credit facility (both fund as well as non fund based) extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of Rs.100 lakh (Rupees Hundred lakh only) are eligible to be covered. The guarantee cover available under the scheme is to the extent of 75% / 80% of the sanctioned amount of the credit facility, with a maximum guarantee cap of Rs.62.50 lakh / Rs. 65 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to Rs.5 lakh
Under National Equity Fund Scheme equity support is available to entrepreneurs for setting up new projects in tiny/small scale sector, for undertaking expansion, modernisation, technology upgradation and diversification by existing tiny, SSI and service enterprises and for rehabilitation of viable sick units in the SSI sector which fulfill the specified eligibility criteria. The scope of this scheme was widened in 2000-01 raising the limit of loan from Rs. 6.25 lakhs to Rs. 10 lakhs and project cost limit from Rs. 25 lakhs to Rs. 50 lakhs.
SIDBI has set up Technology Development & Modernisation Fund (TDMF) scheme for direct assistance of small sale industries to encourage existing industrial units in the sector, to modernise their production facilities and adopt improved and updated technology so as to strengthen their export capabilities. Assistance under the scheme is available for meeting the expenditure on purchase of capital equipment acquisition of technical know-how, upgradation of process technology and products with thrust on quality improvement, improvement in packaging and cost of TQM and acquisition of ISO-9000 series certification.
Many nationalized banks have special concessional rates for SME. Some banks even offer finance at the banks Prime Lending Rate (PLR) for advances below Rs. 2 Lakhs.