Description

MUDRA is a registered NBFC to boost short- and long-term financing in the micro enterprise sector which is currently considered to be the most important pillar for the growth of Indian economy. MUDRA currently provides refinancing services to major banks, mutual fund institutions and NBFCs for extending loans up to ₹ 10 Lakh. MUDRA facility is the outcome of Pradhan Mantri Mudra Yojana which provides support to micro businesses for the development and support. The offerings in various segments is provided below:

  • Technology Enabler for various businesses
  • Re-finance for micro units to Commercial Banks/NBFCs/RRBs/SFBs/MFIs
  • Credit Guarantee for MUDRA loan (through NCGTC – National Credit Guarantee Trustee Company)
  • Development & Promotional Support during initial establishment period

Every business requires a steady stream of cash to operate and eventually at some point of time they may have a fund deficit due to some reason or the other. In such cases business loans can come to the rescue and can stabilize the condition of a struggling business. However, business loans are entirely different from personal loans and come in a variety of forms according to which they cater to the needs of respective businesses. Therefore, you need to be aware of the types of Best business loans you can avail first and then decide which suits your needs the best.

What are the major and most popular loan categories available under the MUDRA scheme?

1. Working Capital Loan :- Working capital loans are short-term loans for business that are usually taken to meet short-term needs or day-to-day expenses. They are usually required in cases where you might have unsteady cash flows, sudden increase in demand or to clear accounts payable, etc. These usually have a tenure of 6 - 12 months and can be either unsecured or secured.

2. Term Loan :- Term loans are business loans that you apply for when you require a long-term loan that provides a lump sum amount for things like capacity expansion, purchase of plants, etc. or more commonly capital expenditure. They usually have a fixed tenure that usually falls in the range of 5 - 7 years and can have fixed interest rate. They have a fixed repayment schedule and are registered as liabilities in the company's balance sheets.

3. Equipment Financing:-These are business loans usually taken for purchasing very costly equipment, which are required in critical operations. Usually the equipment bought is kept as collateral with some additional things. These loans usually have tenures of 5-6 years for already established businesses.

4. Pradhan Mantri Mudra Yojana (PMMY ):-Set up by the Government of India in 2015, it provides loans for businesses like small and medium enterprises for a variety of purposes such as purchase of commercial vehicles, capital expenditure, etc. These business loans do not require any collateral and are categorized under three heads based on the amount of loan:

  • Shishu:- Under this category, an applicant can avail a business loan up to ₹ 50,000 and the same can be utilized for starting a micro business or an individual unit which requires less capital.
  • Kishore :- Under the Kishor category, an applicant can avail a loan starting from ₹ 50,000 to ₹ 5 Lakh for a small business unit, the funds can be used for establishing a unit or for financing the operational necessities.
  • Tarun :- Under the Tarun category, an applicant can apply for a loan ranging from ₹ 5 Lakh to ₹ 10 Lakh for business owners. It is majorly for micro and small business which are already established and require funds for day to day activities as counted under the working capital requirements.

Through initiatives like "Make in India" and privatization of previously protected industries like railways, steel, etc. India has created a favorable environment for establishing businesses in non-farm and non-corporate sectors. Moreover, it is also encouraging growth of small and medium enterprises by providing access to funds at lower costs as well. However, not every loan may be optimal for your business. Therefore, you need to understand what are the different kinds of business loans in India and how they work first. This will help you in getting the required funds for your business in the best way possible.

How to find easy business loans for small business startup by Women entrepreneurs?

Even though every small women business proposal is exclusive and has its particular set of requirements, there are some general steps which any women entrepreneur should know before applying for the MUDRA loan that are most appropriate for the business:

  • Check out all online offers available for the business loans. Refer to various MUDRA consultant banks and NBFCs offering loans under the scheme
  • Check the eligibility of your startup or business proposal. Most of the business loans have well-written eligibility requirements. These conditions involve the profile of women entrepreneurs, their education level, the age of the business, and others.
  • One can easily apply for their loan application online with the help of various apps available of major banks and NBFCs by filling up application and submitting the documents

Several small business loans are for both men and women entrepreneurs. But under the MUDRA scheme, the government has provided a special scheme only for women entrepreneurs. The loans for small business startup only for women attract low interest rates and also for a flexible repayment tenure.

Read More:- Business Loans for Women

 

How can you apply for a MUDRA loan?

MUDRA loans are the most popular loan scheme amongst the micro and small businesses in India. The loans are offered by almost 29 different banks and NBFCs. The steps to apply for a Mudra loan are mentioned below:

  • Visit the official MUDRA site i.e. MUDRA organisation page
  • Download the application form on the offerings page
  • Fill-up the form and attach necessary documents
  • Visit the nearest bank branch of your choice
  • Submit the application form along with the documents at the bank
  • Get the document verification done from the bank
  • Post successful verification, the bank sanctions the loan and disburses the amount

MUDRA loan Interest rates and charges

The loans under the MUDRA scheme are offered on low rate of interest as it’s a mandate being advised to all the member banks. The lending rate is essentially lowered for the non-farm, non-corporate micro and small enterprises for a credit limit to the tune of ₹ 10 Lakh.  The range in between the rate of interest may vary comes between 8.40% to 12.45% per annum.

Here is a list of major banks and their effective rate of interest on MUDRA loans:

Bank Name

Rate of Interest

Loan Tenure

HDFC Bank

8.40% to 12.35%

1-5 years

State Bank of India

8.35% to 12.40%

1-5 years

Bank of Baroda

8.40% to 9.25%

1-3 years

Bank of India

8.35% onwards

1-5 years

IDBI Bank

8.40% to 12.35%

1-5 years

ICICI Bank

8.40% onwards

1-3 years

Union Bank

8.35% to 10.00%

1-5 years

The rate of interest is kept between the range as provided in the table. However, the processing charges and the documentation support charges may vary from one bank to another. There is no specific limit to these charges, any institution can apply the usual lending fees and charges on the MUDRA scheme loans.

List of eligible business entities covered under the MUDRA scheme

MUDRA scheme was launched to promote and help the micro and small businesses to establish and flourish with necessary and sufficient funds in order to make them able to run their businesses efficiently. However, unlike other business loans, these types of loans are provided to units belonging to special or designated category as provided below:

  • Self-proprietors
  • Partnership firms
  • Service sector micro firms
  • Micro industries from various demographics
  • Major and minor repairing shops
  • Owners of trucks and fleets
  • Micro & small manufacturing units
  • Large and small vendors (fruits and vegetables)

Documents required for successful MUDRA loan application

MUDRA loans are offered to the type of businesses as mentioned above, however the documents required for the same may vary from one business to another. Here is a list of documents one might need to apply for a MUDRA loan:

  • Proof of identity
  • Proof of residence
  • Quotations for proposed purchases of machinery or other articles
  • 4 or more passport size photographs
  • Proof of business establishment and identity
  • Proof of business location and ownership details
  • Balance sheet and profit/loss statement for last 2 years
  • Bank statement for the last six months
  • Estimated balance sheet for the proposed tenure of loan repayment

MUDRA Loan Subsidy

The MUDRA loans are provided as a form of subsidy to the under-developed sector of the Indian economy at low rate of interest and without a collateral or security in most cases. As of now, the purpose of MUDRA yojana is to extend subsidized loans to beneficiaries as given below:

  • Providing a line of credit to small and micro business units, which are already established or new business unit
  • Scheme aims at creating an environment which includes all in the entrepreneurial culture to create and provide opportunities in a sustained environment
  • Major focus is on empowering women on their journey towards being financially independent and successful business owners
  • Scheme also ensures providing financially literacy to under-privileged sections of the society to establish and manage their businesses efficiently

In the recent times, the micro and small enterprises sector has seen a significant upward trend and has increased the demand for personal or small business loans. The banks and the NBFCs have utilized this opportunity to their best but the loans were majorly being provided to organized business units. The PM MUDRA Yojana (PMMY) revolves around the un-organized business sectors like the vendors, home-based micro manufacturing units – independently run by women, low scale dealers and traders and many others.  

 

FAQs

Q1 What is the interest rate under the Mudra/PMMY Scheme?
Interest rates range is pre-determined between 8.40% to 12.35% per annum and the applicable rates are decided by the lending institution at the time of the loan application.
Q2 What is the target audience for MUDRA Yojana?
MUDRA is designed for Non-Corporate Small Business (NCSB) segment which includes business entities such as small manufacturing plants, shopkeepers, food-service units, artisans, machine operators, service sector installations, vegetable/fruit vendors, repair shops, truck operators, etc.
Q3 Why do the interest rates differ from one institution to another?
MUDRA loans are unsecured loans as no security or collaterals are required to avail the loan. This is a reason why interest rates vary from institution to institution as every organization calculates the risk factor on its own and establishes rates accordingly.
Q4 What is the repayment criteria for MUDRA Loans?
The repayments terms and conditions are decided by the intermediary lending institution according to its rules considering the cash flow of the business in question.
Q5 Do all banks in India fall under the MUDRA Yojana?
Yes, as per the Department of Financial Services (DFS), an advisory is sent to Public Sector Banks, Scheduled Commercial Banks and Regional Rural Banks for bringing all loans up to ₹ 10 Lakh be disbursed for non-farm business activities after the 7th of April 2015 under the Mudra Scheme. The DFS has also instructed all banks to provide loans under the scheme and put targets per branch.
Q6Is the PMMY Scheme active now?
Yes, the scheme has been active since April 8th 2015 throughout the country.
Q7How long is the processing time for Loans under the MUDRA Scheme?
Lower amount loans such as the Shishu loans are generally disbursed within 7-10 working days while the larger categories take almost 2 weeks, and it varies from one lender to the other.
Q8Are the loans subsidized by the central government?
No, these loans are not subsidized by the central or state governments.
Q9How does a MUDRA application form looks like?
For the smallest category i.e. Shishu Loans, application form is of a single page. For Kishor and Tarun categories, the application form is detailed and contains 3 pages that need to be filled and submitted.
Q10 Where can I find the MUDRA Loan application form?
You can easily find the application forms online on the Mudra website or get one from any of the intermediaries/institutions/banks.