Loan, subsidy or guarantee: what you actually get
Tell a loan from a subsidy from a guarantee, and know which one you need.
5 min read
"Government funding" is used to mean three quite different things. Mixing them up is how people expect free money and get a loan, or turn down a guarantee because they thought it was a debt. Here is the difference.
A loan: you pay it all back
A loan is money a bank or lender gives you now, which you repay with interest over an agreed time. A government scheme can make a loan easier to get — no collateral, a lower margin, a priority for some founders — but it is still yours to repay, every rupee.
MUDRA and Stand-Up India are loans.
A subsidy: part of the cost is paid for you
A subsidy is money towards your project that you do not repay, as long as you keep to the scheme's conditions. It usually comes alongside a loan, not instead of it, and it often arrives after the unit is running rather than up front.
PMEGP is a subsidy: a share of the project cost, between 15% and 35% depending on who you are and where the unit is, on a project funded mostly by a bank loan.
A subsidy has conditions. Close the unit early, use the money for something else, or fail an inspection, and it can be taken back. Read what the scheme asks you to keep doing — not just what it asks you to do to get in.
A guarantee: someone else stands behind your loan
A guarantee is a promise to the bank: if you cannot repay, the guarantor covers most of the loss. It does not give you any money. What it gives you is a loan you would not otherwise have got, because the bank no longer needs your property as security.
CGTMSE is a guarantee. You pay a fee for it, and you still repay the loan in full.
Side by side
| Do you repay it? | What it gets you | |
|---|---|---|
| Loan | Yes, with interest | Money now |
| Subsidy | No, if you meet the conditions | Part of the cost paid |
| Guarantee | You repay the loan; the guarantee costs a fee | A loan without collateral |
Which do you need?
- You have no property to offer as security → a collateral-free loan (MUDRA), or a bank loan covered by a guarantee (CGTMSE).
- You are setting up a new manufacturing or service unit → check whether a subsidy (PMEGP) can cover part of it.
- You need more than MUDRA's ceiling and are a woman, SC or ST founder on your first venture → Stand-Up India.
The previous lesson has each scheme's limits. The scheme check below works out which ones apply to you, in seconds.
Rules checked on 23 September 2026 against mudra.org.in, PMEGP e-portal, standupmitra.in, cgtmse.in.