Margin money: the part of your project the bank expects you to fund

In this article

What margin money actually isHow the bank arrives at your numberWhat counts towards your share — and what doesn'tWhen the money has to be paid inThree mistakes that turn margin money into a rejectionKey takeaways

An embroidery-workshop owner in Pandesara has a quotation for six new computerised machines and a bank that seems willing. Then comes the question that stops many conversations: "How much are you putting in?" Some owners answer with a figure they have never checked against their own bank statements. Others assume the bank finances the whole quotation. Neither is how a term loan works. The bank lends against a project in which you have already put your own money — and that share has a name: margin money.

What margin money actually is

Margin money, also called promoter contribution or "own contribution", is the part of the total project cost you pay from your own resources. The bank finances the balance. In plain terms: if the project costs ₹80 lakh and the margin is 25%, you bring ₹20 lakh and the term loan is ₹60 lakh. It is the bank's way of making sure you carry real loss if the project fails — a borrower with nothing in the project has nothing to lose by walking away.

One word of caution on terminology. Under PMEGP, "margin money subsidy" means something different — a government subsidy credited against the loan. This article is about the plain borrower's own share, which every term loan has, whether or not a scheme is involved.

How the bank arrives at your number

There is no single national percentage. Each bank sets its own margin for each scheme, and it moves with the risk it sees. Some published scheme pages of public-sector banks show a 25% margin (for example Canara Bank's MSME Textile scheme and Bank of Baroda's Contractor Loan scheme) — verified as of October 2026; confirm current terms before applying, because schemes are revised and your branch may apply a different figure to your file. Three things usually push the number up or down: how strong the unit's track record is, how much collateral or guarantee cover sits behind the loan (see CGTMSE), and how risky the bank considers the trade.

The percentage is applied to the whole project cost, not the machine price alone. A project report lists machines, installation, electrical load, civil work and, if the working capital is financed together, the working-capital margin. Add them up, and your share is computed on the total. Ask your bank whether GST on the machines is part of the project cost for your file: if you can claim input tax credit on it, banks often treat it differently, and the answer changes your number.

The bank is not asking whether you can find the money. It is asking whether it can trace where the money came from.

What counts towards your share — and what doesn't

This is where files get stuck. A credit officer counts what they can verify and ignores the rest. In our experience, the dividing line looks like this.

Take the Pandesara owner from the opening. Of the ₹20 lakh he needs, ₹12 lakh sits in his savings account, which shows in his last twelve months of statements. He has also paid ₹5 lakh as an advance to the machine supplier, and had ₹3 lakh of electrical work done, both with bills and bank entries. The bank can count all ₹20 lakh. A neighbour with the same project but whose ₹20 lakh arrived as a cash deposit last month, from a friend, will face questions on every rupee.

When the money has to be paid in

Margin money is not just a figure on the project report; it is a condition. Sanction letters commonly require the borrower to bring in their share before, or in step with, the first disbursement, and many banks pay the machine supplier directly rather than handing over cash. That is why the sanction letter should be read with this in mind — see how to read a sanction letter. If the clause reads "margin to be brought in upfront", the bank will not release its ₹60 lakh while your ₹20 lakh is still unarranged, and a supplier's delivery date does not wait.

Three mistakes that turn margin money into a rejection

Inflating the quotation. Some owners ask the supplier for a higher invoice so that the loan covers their margin as well. Banks cross-check quotations against market prices, inspect the machines and look at the payment trail. If the numbers do not agree, the file loses credibility far beyond the machines, and all documents are then read with suspicion.

Borrowing the margin. A personal loan or gold loan taken to fund your share means the project is being financed entirely by debt. The bank will see the new instalments in your bank statement, and the repayment burden reduces what it believes you can service.

Leaving it to the last week. Arranging ₹20 lakh takes time if it means selling an asset or moving a fixed deposit. Plan the margin when you plan the project, so that your statements show a clean history by the time the bank looks at them.

This article is general information, not professional advice. Rules change; verify current provisions or contact the office for advice on your situation.