Reality: Government-subsidised loans (PMMY, PMEGP, CGTMSE) are full loans that must be repaid with interest. The government only subsidizes part of the cost (15–35%) or guarantees the credit, not the loan obligation itself.
Borrowers are shocked when they receive loan repayment demands for the full amount and assume the lender is cheating.
*Outcome: Higher EMI (₹28k) than budgeted (₹21k) caused financial stress.
Reality: These schemes require full documentation (ITR, registration, bank statements). The credit guarantee (CGTMSE) or collateral waiver (PMMY) eliminates the need for *assets* as security, not the need for *documents*.
Borrowers apply underprepared, face rejections, waste time, and miss funding opportunities.
Claim: "No collateral needed, so no documents required."
Reality: Government subsidy (PMEGP, etc.) is typically disbursed 3–6 months *after* the loan disbursal. Borrowers must service full EMIs from their cash flow while waiting for the subsidy credit.
Borrowers expect immediate relief and struggle when EMI obligations start months before the subsidy actually arrives.
Impact: Cash flow strain during the first quarter.
Reality: PMEGP is strictly for new projects/units. Existing businesses do not qualify. PMMY (Mudra) and CGTMSE are the correct schemes for both new and existing MSMEs.
Businesses apply to the wrong scheme, get rejected, and blame "government bias" instead of understanding eligibility criteria.
Reality: Banks never ignore CIBIL or DSCR (Debt Service Coverage Ratio). A score of 650+ and DSCR >1.25 remain mandatory because the bank still carries risk.
Borrowers with poor credit wrongly expect government schemes to bail them out, leading to inevitable rejection.
Proposal: PMEGP project with DSCR of 0.90.
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