Small and medium businesses that want to grow but can’t raise enough money may soon have a new option. The Union Cabinet on Tuesday, October 6, approved a ₹10,000 crore SME Growth Fund that will invest in such companies in return for a stake.
The scheme was first announced in the Union Budget 2026-27 as part of a wider plan to build “champion MSMEs”, according to Business Today.
How the SME Growth Fund will work
The government will put ₹10,000 crore into an Alternative Investment Fund (AIF), a pooled investment fund registered with SEBI. That fund will then invest in small and medium businesses as equity. In other words, it will become a part-owner of the companies it backs, instead of lending them money.
The money is meant to be long-term, patient capital, the kind that does not need to be paid back in fixed instalments. Want to understand how AIFs work? Read our explainer on setting up a Category I AIF.
Why the government is doing this
Most existing government-backed funds support very early-stage startups and micro businesses. Banks, on the other hand, lend against property and steady cash flows, and they don’t take ownership risks. That leaves a gap for businesses in the middle: firms that already work and earn but need a big chunk of capital to grow.
Think of a family-run auto parts maker in Rajkot that wants to double its factory or start exporting. A bank loan may not be enough, and a venture capital fund may not be interested. This fund is designed for companies like that.
Who can benefit from the SME Growth Fund?
- Manufacturers: most of the money will go to small and medium manufacturing companies.
- Businesses in smaller cities: the fund will also look at firms in industrial clusters in Tier-II and Tier-III cities.
- Established firms: it targets companies with a proven business, not ideas on paper.
The capital can be used to expand capacity, buy new technology, enter export markets or acquire other businesses.
What is still not clear
Key details are yet to come: who will manage the fund, exact eligibility rules, how much each company can get, and when money will start flowing. These usually follow in operational guidelines, so keep an eye on announcements from the Ministry of MSME.
How to get your business ready
Equity investors look closely at the books. If you run an SME and might apply, start now: get your accounts audited, make sure your GST filings match your books, keep shareholding records clean, and write down exactly what you would do with fresh capital. And be ready to give up part of your company in return.
Private investors are active here too. Appliance maker Beyond Appliances, for instance, raised ₹110 crore this week, as covered in our weekly startup funding roundup.
Sources: Business Today, Business Standard and ChannelIAM.
