One of the major difficulties facing startups, small businesses and entrepreneurs is raising the required funding to meet various needs. Adequate and timely funding is a must for businesses to capitalise on market opportunities and to scale up their enterprise. To help businesses win the battle of fundraising, the government of India has launched several schemes especially for small businesses and startups.
Among these funding schemes for small businesses, the flagship scheme of the central government is the Pradhan Mantri Mudra Yojana (PMMY), commonly referred to as Mudra loans. Launched in April 2015, Mudra loans offer loans to small businesses via the MUDRA (Micro Units Development and Refinance Agency).
In this article, we walk you through the benefits, types, objectives, and eligibility of Mudra loans. You can then decide if Mudra loans are the right choice for your business to meet your funding needs.
Overview of Mudra Loans
As per a survey by the NSSO (National Sample Survey Office) in 2013, there were nearly 5.77 crore MSMEs existing in India. However, a vast majority of small businesses in the country had acute financial needs. Yet, they found it difficult to borrow from traditional lenders due to lack of documentation, stringent eligibility criteria, poor/lack of credit history and so on.
To address this pressing issue, the PMMY was launched on 8th April 2015. The primary objective of the PMMY scheme is to provide accessible and affordable financing to MSMEs. As a result, the MUDRA NBFC was formed under the PMMY. The Micro Units Development and Refinance Agency offers support to various banks and NBFCs to extend credit facilities to MSMEs.
Under the MUDRA scheme, MSMEs requiring funding can approach any bank/NBFC that has a tie-up with the MUDRA unit. Before, we take a look at the eligibility and application procedure of Mudra loans, let’s understand its types.
Three Types of Mudra Loans
Mudra loans are offered to businesses and startups in the form of working capital loans or term loans. They can be classified into three types. They are:
| Loan Type | Loan Amount Offered | Funding Purpose | Who is it for? |
| Shishu | Loans up to Rs. 50,000 fall under the Shishu category. | Used to set up a business, purchase raw materials, or invest in infrastructure needs to begin a small business. | Ideal for startups and small businesses who are just getting started. |
| Kishore | Loans from Rs. 50,000 to Rs. 5 lakhs fall under this category. | Primarily used for the expansion of an existing business or to increase working capital. | Used by existing enterprises with a few years of experience. |
| Tarun | Loans from Rs. 5 lakhs to Rs. 10 lakhs fall under this category. | Mainly used for capital expansion. | Due to the high value of the loan, these are offered for existing businesses with a good track record. |
How can businesses meet their funding needs with Mudra?
Step 1: Deciding Mudra Loan Category
To avail loans under Mudra, the first step is to decide the category under which you want to apply for the loan. Begin by evaluating your funding needs, the nature of your business and then match it with any one of the three loan categories mentioned above.
Step 2: Fixing the Lender
Mudra loans are offered by almost all public sector banks, private banks, and several NBFCs. Your next task is to find the right lender for you. Compare the interest rates of Mudra loans at various lenders and choose a lender, who offers you the best deal.
To make it easy to compare different lenders, use a third-party loan aggregator like CreditMantri. CreditMantri offers you the list of all Mudra loan lenders in a single page. You can then compare interest rates, features and eligibility and pick the lender who gives you the best Mudra loan deal.
Step 3: Loan Application
The final step is to apply for the Mudra loan. Majority of lenders make it easy for borrowers by offering an online application process. Along with the loan application form, you have to provide a few key documents to support your application. The actual list of documents varies based on the lender.
Here are the general list of documents you have to provide:
- Identity and address proof of the business owner
- Previous loan records if any
- Other business proof documents like partnership deeds, etc.
Besides these general documents, some lenders require the borrower to provide a detailed business plan. Also if you apply for Mudra loans under Kishore and Tarun, you will also have to provide the company balance sheet, profit and loss statements for the last two years to get the loan approved.
Step 4: Loan Sanction and Disbursal
Finally, once the loan is approved, the loan amount is credited directly to the bank account of the borrower. The business can then use this loan amount to meet working capital or other business needs.
Alternatively, the loan amount is also provided in the form of a Mudra card. The entire loan amount is loaded onto this card, and the borrower can withdraw from it as and when required. Mudra cards work like an ATM/debit card, making it convenient for businesses to use the funds as needed.
Mudra Loans offer an Accessible & Affordable Funding Solution for Businesses
One of the biggest benefits of Mudra loans is that they are easier to get than traditional business loans. Traditionally, applying for and getting a business loan from a bank is a lengthy and time-consuming process. Additionally, the lender may ask you to provide a collateral/guarantee before you can get the loan amount.
Mudra loans do not require collateral and the eligibility process is minimal making them a great choice for all businesses – especially startups and micro units that are just getting started.
Mudra loans are a boon for first-time entrepreneurs, small businesses, roadside vendors, shop owners, women entrepreneurs, and other micro, small and medium enterprises. Check your eligibility and apply at the right lender to meet your business funding needs with Mudra loans.
