An economic survey from 2021-22 branded India as the world’s third-largest startup ecosystem. Another report suggests that startups will contribute 4-5% of India’s GDP between 2022-2027.
Startups are an integral part of the Indian economy, and the Government recognises this. This is why it even launched schemes to boost the zeal of Indian entrepreneurs.
The Pradhan Mantri Mudra Yojana (PMMY) is one such government initiative which helps in providing financial support to small and micro enterprises in India.
Curious to know more about the Mudra loan? Then read on.
What is a Mudra loan for business?
Introduced in 2015, the Mudra in Mudra loan stands for Micro Units Development and Refinance Agency. The slogan of the Mudra loan is “Funding the unfunded”, aiming to empower small-scale businesses in India.
With the easy loan process and lower interest rates of the Mudra loan, the Government aims to support micro-businesses in trading, manufacturing and services. It also helps to empower women entrepreneurs or business owners in marginalised communities by providing them with concessional interest rates.
During FY 2022-23, about 6,23,10,598 such loans got sanctioned, and the Government disbursed loans amounting to Rs. 4,50,423.66 crores.
Here are some additional details about the loan you should know about.
Types of loans
The Mudra loan for business has been classified into three different categories based on the disbursed loan amount:
Scheme name
Loan amount
Purpose
Shishu
Up to Rs. 50,000
Suited for entrepreneurs looking to set up their businesses. They must submit quotations from suppliers to purchase machinery through the loan.
Kishore
Between Rs. 50,000 to Rs. 5,00,000
Suited for established businesses to grow their operations. Here, borrowers need to submit a project report attached to the loan documents to be eligible.
Tarun
Between Rs. 5,00,000 to Rs. 10,00,000
Suited for well-established businesses wanting to expand their operations or offer various products. They have stricter eligibility requirements, and the loan is disbursed only after careful verification of the loan eligibility.
Benefits of Mudra loan
The Mudra loan is designed to benefit and encourage the growth of small businesses:
1. Collateral-free loan: The Mudra loan is a type of unsecured loan. This means you don’t have to put up any security as collateral to the lending institution. A collateral-free loan reduces mental stress and helps you focus on business growth without worry.
2. Loans for specific business needs: The biggest benefit of the Mudra loan is that you can find a loan suited for the size of your business and its purpose. Besides, the loan eligibility requirements are lower for loans of lower amounts, and one can get a loan through the scheme at both banks and NBFCs. This makes it easier for new business owners to obtain a business loan.
Note that businesses can also secure sector-specific loans through the Mudra scheme. For instance, they can avail of loans if they are engaged in businesses that involve food processing, poultry farming, etc.
3. Low interest rates: Unlike traditional loans, business owners can use the Mudra scheme at lower interest rates. This does two things. It makes loan repayments more manageable and allows business owners to direct their funds to run other essential aspects of their business.
4. Easy loan disbursal: The Government has directed financial institutions to provide a streamlined loan approval process. With minimal documentation and complications, applying for the Mudra loan has become more accessible.
5. Fees: The Mudra loan has reduced certain extra charges from business loans. There are no foreclosure charges and no processing fees. This means business owners can repay the entire loan amount before the term ends without incurring additional costs. Plus, they save up to 0.5% of the total loan amount, which typically accounts for processing fees.
Business activities that entrepreneurs can finance through a Mudra loan
The Mudra loan is targeted towards non-farming and non-corporate startups and MSMEs. The following types of business activities are eligible for this scheme:
Business sector
Business activity
Trading sector
Shop set-ups, non-farming business activities, trading activities
Commercial vehicle
Financing purchase of commercial vehicles, including tillers, transport vehicles, tractors, e-rickshaws, etc.
Merchants
Shop set-ups, inventory purchase for non-farming-related activities 9up to Rs. 10 lakhs per borrower/enterprise
Food outlets
Inventory purchases, machinery purchases
Agri-allied business
Poultry, beekeeping, dairy, fisheries
Community Service and PersonalService focused businesses
Handloom, furnishing accessories, products like bags, dyeing, printing, etc.
Equipment finance scheme for Micro Units
Machinery to set up micro-enterprises (up to Rs. 10 lakhs)
Loan eligibility
Before you apply for the PM Mudra loan, check for the required eligibility criteria:
1. You must be an Indian citizen with a small business or partnership firm
2. You must be at least 18 years old and at most 65 years old
3. The business segment must be trading, manufacturing or service related
4. Loan requirements should not be related to farming activities
5. Should have a good credit score and loan repayment history
6. Enterprises, including sole proprietorship, LLPs, NGOs, co-operative societies, Pvt. & Public Ltd. Companies can apply for the loan
Documents required for Mudra application
When you apply for the Mudra loan online, you will have to submit the following during the application process:
Required document
Accepted document
Identity proof
Self-attested copy of Adhaar card, Voter ID card, Passport, or PAN Driver’s licence
Address proof
Self-attested copy of Adhaar card, Voter ID card, Passport, or PAN Driver’s licence, along with electricity bill
Photographs
Two passport-sized photos
Purchase proof
Proforma invoice of material to be purchased
Proof of business
Registration certificate or copy of trade licence
Category proof
Caste certificate (If applicable)
Looking to get Mudra loan online? Apply today
As a growing economy with much potential, the Government is making amends to boost entrepreneurship in the country. If you have a unique business idea, take advantage of these schemes and embark on the journey into the business world.
Looking for an alternative to the Mudra loan? Apply for a business loan with Tata Capital. We offer low-interest business loans, flexible terms and a hassle-free application process. Visit our website to learn more.
04 July 2023
5 mins read
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