2nd Loan for Up-gradation of Existing PMEGP/REGP/MUDRA Units: Interest Rates and How to Choose a Lender

How lenders treat the PMEGP 2nd loan, and how to pick one

For the 2nd Loan for Up-gradation of Existing PMEGP/REGP/MUDRA Units, the interest rate is set by each bank under RBI norms, not fixed by the scheme. The subsidy comes as a 15% back-ended margin money grant (20% in NER and hill states), not as an interest concession. So the lender you choose changes your effective cost. You may go back to the bank that gave your first loan, or approach any other willing bank. This article helps you compare; the 2nd Loan for Up-gradation of Existing PMEGP/REGP/MUDRA Units pillar covers eligibility and the subsidy in full.

Who lends under the PMEGP 2nd loan

PMEGP credit is routed through participating banks: public sector banks, private scheduled commercial banks, regional rural banks and cooperative banks that finance PMEGP units. The Khadi and Village Industries Commission (KVIC) coordinates the scheme nationally, but the actual loan is a normal bank term loan carrying the bank's own rate of interest.

A key structural point from the Ministry of MSME guidelines: the implementing agency's clearance does not bind the bank. The KVIC/KVIB/DIC forwards your scrutinised file, but each bank independently appraises and prices the loan. That is exactly why the choice of lender matters.

Same bank or a new bank?

Staying with your first-loan bank has real advantages:

• The branch already holds your repayment history and account conduct, which is the strongest evidence for the second loan.
• The margin money adjustment on your first loan sits in that bank's books, so the eligibility proof is one desk away.
• Appraisal is usually faster because your accounts are known.

Switching to a new bank can make sense when:

• Your existing branch is slow, or has declined the fresh exposure.
• Another bank offers a lower rate or a better working-capital tie-in for your upgraded unit.
• You want to consolidate borrowings where you already have a good relationship.

If you switch, budget extra time. The new bank starts your credit appraisal from scratch and will want the last three years' accounts, the first loan's repayment proof, and the margin money adjustment record.

What determines your interest rate

Because the scheme does not cap the rate, your cost turns on ordinary lending factors:

1. The bank's benchmark (repo-linked or MCLR) plus its spread for MSME term loans.
2. Your credit profile; turnover, profitability and repayment track record on the first loan.
3. Loan size and tenure for the upgradation project (up to Rs 1 crore in manufacturing, Rs 25 lakh in services).
4. Collateral and CGTMSE cover, smaller PMEGP loans are often covered under credit guarantee, which can affect pricing and security demands.

Rates move over time and differ by bank, so do not rely on any single advertised figure: ask each shortlisted branch for a current, written quote for your specific project.

Questions to ask every bank before you commit

1. What is the all-in interest rate for this loan today, on which benchmark, and how often does it reset?
2. Is any part of the loan covered under CGTMSE, and if so, do I pay the guarantee fee?
3. What own contribution and collateral do you require beyond the mandatory 10%?
4. How will the margin money subsidy be parked (term deposit / subsidy reserve) and when will it be adjusted?
5. What is your processing time from sanction to disbursement?
6. Are there processing or documentation charges, and are they waived for PMEGP?

How to choose, step by step

1. Shortlist your first-loan bank plus one or two others that finance PMEGP units in your district.
2. Ask each for a written quote covering rate, fees, collateral and timeline.
3. Compare the effective cost, not just the headline rate: factor in fees, reset frequency and how quickly the margin money is adjusted.
4. Weigh speed and relationship against a marginally lower rate; a familiar branch that moves fast can be worth more than a small rate saving.
5. Confirm the branch is enrolled to process PMEGP margin money claims before you sign.

Where to get help

• PMEGP technical support: 022-69168907
• PMEGP operational support: 022-26712087
• Email: support-pmegp@msme.gov.in
• Zonal helpdesks are listed on the PMEGP portal Help Desk section.

Applying on the PMEGP e-portal is free. No agent can get you a better rate or a faster sanction for a fee, the bank prices the loan on your project and your track record.