Executive Summary
- Margin money subsidy is kept in a special interest-bearing deposit, not paid out immediately
- It is adjusted against the loan only after three years of satisfactory operation
- EDP training completion is verified before subsidy processing begins
- Ongoing loan repayment continues normally during this three-year period
How the Margin Money Subsidy Is Actually Held
A common misconception is that PMEGP subsidy is paid directly to the beneficiary upon sanction. In practice, the calculated margin money subsidy is kept in a special interest-bearing Term Deposit Receipt (TDR) in the beneficiary's name at the financing bank, not disbursed as cash.
Why There Is a Three-Year Lock-In
This TDR remains locked for three years from the date of first disbursement, during which the beneficiary must continue regular loan repayment on the full sanctioned amount — the subsidy in the TDR does not reduce monthly EMI obligations during this period, which surprises beneficiaries expecting an immediate reduction in their repayment burden.
What Happens at the Three-Year Mark
If the enterprise has operated satisfactorily for three years — defined as regular loan servicing and continued business operation — the TDR amount, including accrued interest, is adjusted against the outstanding loan principal, effectively reducing the remaining loan balance at that point. If the business has closed or the loan has gone into default, the subsidy treatment follows the bank's standard recovery process instead.
Your Ongoing Obligations During This Period
During the three-year lock-in, beneficiaries must maintain regular EMI payments exactly as they would for any standard bank loan, keep the business genuinely operational, and avoid any action that would constitute default — since the subsidy benefit is realised only upon satisfactory completion of this period, similar in spirit to the ongoing compliance obligations covered in our CGTMSE post-sanction guide.
Frequently Asked Questions
When is the PMEGP subsidy actually paid out after loan sanction?
PMEGP subsidy is not paid out immediately after sanction. The margin money subsidy is kept in a Term Deposit Receipt (TDR) in the borrower's name at the financing bank for 3 years from first disbursal. After 3 years of satisfactory business operation and regular loan repayment, the TDR amount — including accrued interest — is adjusted against the outstanding loan principal, effectively reducing the remaining balance at that point.
Do I still pay full EMI during the 3-year PMEGP subsidy lock-in period?
Yes. During the 3-year lock-in, borrowers continue regular EMI payments on the full sanctioned loan amount — the margin money subsidy held in the TDR does not reduce monthly repayment obligations during this period. This surprises many first-time PMEGP beneficiaries who expect an immediate reduction in their EMI burden. Budget for full EMI payments for at least 3 years before the subsidy benefit is realised.
What happens to PMEGP subsidy if the business closes before 3 years?
If a PMEGP-funded enterprise closes or defaults within the 3-year lock-in period, the TDR holding the margin money subsidy is applied to recover the bank's dues. The subsidy benefit is lost and the borrower remains liable for any outstanding loan balance. This makes business continuity during the 3-year period both a compliance obligation and a financial imperative for PMEGP beneficiaries.