How to Choose Between Shishu, Kishore, and Tarun Mudra Loan Categories?

Lack of collateral, complex documentation, and a short credit history are just a few of the major obstacles that many small firms in India must overcome in order to get a business loan. These obstacles often keep promising businesses from getting the funding they need to expand. In recognition of these difficulties, the Indian government introduced the Pradhan Mantri Mudra Yojana (PMMY) or Mudra loan to provide micro and small businesses simple, collateral-free loans.

One important point of consideration when applying for MUDRA loans is to understand the differences between the Mudra loan categories. There are three MUDRA categories: Shishu, Kishore, and Tarun. Explore the features of Mudra loans, differences between Shishi, Kishore, and Tarun loans.

What is a MUDRA Loan?

The MUDRA loan is a part of the Pradhan Mantri MUDRA Yojana (PMMY) that supports micro and small businesses in India. It offers financial assistance to businesses engaged in non-farm activities, including manufacturing, trading, and services.

MUDRA (Micro Units Development and Refinance Agency) loans are a cornerstone for small businesses and micro-enterprises in India. They offer financial assistance without collateral, promoting entrepreneurial growth.

MUDRA Loan Categories

Under the Pradhan Mantri MUDRA Yojana (PMMY), these loans are categorised into three stages: Shishu, Kishore, and Tarun, each catering to different phases of business development. 

The Shishu loan provides up to ₹50,000, making it ideal for start-ups. Kishore loans offer amounts ranging between ₹50,001 and ₹5 lakh, suitable for growing businesses. Lastly, Tarun loans, ranging from ₹5 lakh to ₹10 lakh, are for well-established businesses.

MUDRA Category	Loan Amount
Shishu	Up to ₹50,000
Kishore	₹50,001 – ₹5 lakh
Tarun	₹5 lakh – ₹10 lakh
Tarun Plus	₹10 lakh – ₹20 lakh

Overview of Shishu, Kishore, and Tarun Loan Categories

Choosing the right MUDRA loan category can be crucial for your business. Here’s a breakdown of the Shishu, Kishore, and Tarun loan categories under the Pradhan Mantri MUDRA Yojana.

Shishu Mudra Loan

• Target: New businesses or startups, especially those in the pre-revenue or early revenue stages.
• Loan Amount: Up to ₹50,000
• Eligibility: Entrepreneurs and micro-enterprises starting their operations.

Kishore Mudra Loan

• Target: Businesses operational for 1-2 years, seeking expansion.
• Loan Amount: ₹50,000 to ₹5 lakhs
• Eligibility: Businesses with a track record, aiming for growth.

Tarun Mudra Loan

• Target: Established businesses with more than 2 years of operational history.
• Loan Amount: ₹5 lakhs to ₹10 lakhs
• Eligibility: Businesses requiring larger funding for expansion or operational needs.

Key Differences Between Shishu, Kishore, and Tarun Loan Categories

MUDRA loan is designed to help micro-enterprises. Choosing between the Shishu, Kishore, and Tarun categories depends on your business stage and needs. Here are the key differences between Shishu, Kishore and Tarun loan categories:

Features	Shishu	Kishore	Tarun
Loan Amount	Up to ₹50,000	₹50,001 to ₹5 lakhs	₹5,00,001 to ₹10 lakhs
Business Stage	Idea stage/startups (early development)	Existing small businesses seeking expansion	Established businesses for scaling further
Eligibility Criteria	New entrepreneurs with viable plans No financial history needed	Existing businesses with some financial record Business documents may be required	Established businesses with strong financials and credit history
Loan Repayment Terms	Up to 5 years (may include moratorium)	Up to 5 years (based on business profile)	Up to 5 years (based on project viability)
Interest Rates	8% – 12% (varies by lender & profile)	10% – 15% (bank and risk-based)	12% – 16% (higher due to larger amount)
Collateral	No collateral required	No collateral required	No collateral required

Business Stage and Eligibility

• Shishu Mudra loans cater to startups needing seed capital. They require basic documentation like identity and address proof.
• Kishore Mudra loans are for businesses looking to expand, requiring a business plan and proof of ongoing operations.
• Tarun Mudra loans are suitable for established businesses with larger capital needs.

Interest Rates

Interest rates vary but remain regulated under MUDRA guidelines. It can range between 8% to 16%   For more on applying for a loan, visit our article on Common Mudra Loan Challenges & How to Overcome Them. Further details on loan interest rates can be found through credible sources such as the PMMY official site.

How to Choose the Right MUDRA Loan Category for Your Business?

Choosing the right MUDRA loan category is crucial for aligning your business needs with the appropriate funding. Here’s how to decide which Mudra loan category is best for you:

1. Assess Your Business Stage

• Shishu is for startups or businesses in early stages needing up to ₹50,000.
• Kishore is suitable for businesses ready to scale, requiring funding between ₹50,001 and ₹5 lakh.
• Tarun is for established enterprises needing substantial expansion capital up to ₹10 lakh.

2. Determine Loan Requirements

Evaluate how much funding your business needs. This will help you choose between Shishu, Kishore, and Tarun based on your capital requirements. For example, you can apply for a Kishore Mudra loan if you need up to ₹4 lakhs to open another store and grow your business.

3. Evaluate Repayment Capabilities

Choose a loan category with terms that fit your cash flow to avoid financial strain. Focus on interest rates and flexible repayment terms.

4. Consider Growth Potential

Match your current business needs and future ambitions with the right loan category to support your growth trajectory.

5. Consider Your Industry

Industries like microfinance or khadi activities may have specific needs, influencing your choice.

Documents and Eligibility Requirements for MUDRA Loans

Applying for a MUDRA loan requires the necessary documents and meeting eligibility standards. Here’s what you need to know about Mudra loan eligibility criteria:

1. Common Documents Required

• Identity Proof: Aadhaar, Voter ID, PAN card
• Address Proof: Utility bills, rental agreement
• Business Evidence: Business registration, trade license
• Bank Account Statements: Last six months
• Business Plan: Clearly outline your business idea

2. Eligibility Criteria

• Indian Citizen: You must be an Indian citizen
• Micro or Small Enterprises: For sectors such as trading, manufacturing, and services
• Viable Business Idea: For new or existing businesses

3. Loan Categories and Specific Requirements:

Loan Category	Additional Requirements
Shishu	Basic documents only
Kishore	Past financial records (e.g., income tax return)
Tarun	Comprehensive financial records

Benefits of Choosing the Right MUDRA Loan Category

Choosing the right MUDRA loan category ensures that your business gets the appropriate financial support. This decision can lead to easier loan approvals and manageable repayment terms. Here’s a look at the benefits of Mudra loans:

• Shishu (up to ₹50,000): Ideal for startups and new ventures, offering the simplicity of minimal documentation and easy accessibility.
• Kishore (₹50,001 to ₹5,00,000): Suited for businesses in pursuit of growth, this category provides adequate funding with relatively low processing fees. 
• Tarun (₹5,00,001 to ₹10,00,000): For established businesses aiming for substantial growth, offering higher loan amounts with collateral-free benefits.

All categories offer low-interest rates, making them an attractive option for micro-enterprises. Additionally, aligning your choice of loan category with your business’s financial health is crucial for long-term success. This alignment ensures the capital loan matches both your current needs and future projections.

Application Process for MUDRA Loans

Applying for a MUDRA loan involves several steps. Here’s a simple breakdown of how to apply for Mudra loans:

Online Application

You can apply for a MUDRA loan online through the official MUDRA website or the websites of participating banks and financial institutions.

• Register: Create an account by going to mudraloanindia.org.in and selecting “Apply Now.” Choose whether you are a self-employed professional, an existing entrepreneur, or a new entrepreneur.
• Provide Business Details: Put in your cell phone number, email address, and name. Use the OTP that was issued to your phone to validate your mobile device.
• Complete the Application: Fill out the form with your personal and business information, such as your industry, company name, and line of work.
• Choose a Loan Type: Depending on your finance needs, choose the loan type of your choice: Shishu (Up to ₹50,000), Kishore (₹50,001 to ₹5 lakh) and Tarun (between ₹5 and ₹10 lakh).
• Upload Documents: Upload all the necessary paperwork, including identity proof, proof of residence, proof of business, bank statements, and passport-sized photographs.
• Application Submission: Please check and send in your application. Make a note of the application number for future reference and tracking. 

Applying Offline at Bank Branches

As an alternative, you may apply in person at a bank branch:

• Visit a Bank: Visit any bank that has been permitted to provide MUDRA loans under PMMY.
• Collect the Application Form: Collect the MUDRA loan application form from the bank.
• Complete and Send in: Fill out the form completely and send it in with the required paperwork.
• Verification and Disbursement: After your application is processed by the bank and approved, the loan amount will be credited to your account. 

Approval Process

Once you submit your application, the lender reviews it. The process can vary slightly between banks. Also, public sector banks, private sector banks, and NBFCS may have different timelines. Approval typically takes a few days to a couple of weeks. After approval, funds are usually disbursed quickly to help you kick-start your venture.

Common Mistakes to Avoid When Applying for a MUDRA Loan

Applying for a MUDRA loan can boost your micro-enterprise, but avoiding certain mistakes is key. Here are common pitfalls and tips to steer clear of them:

• Not Understanding the Loan Category: Choose between Shishu, Kishore, and Tarun based on your business stage. Research each category to align with your capital requirements.
• Insufficient Documentation: Missing documents can delay or deny your application. Prepare financial statements and keep identity and address proof ready.
• Applying for an Amount Higher than Needed: Over-borrowing leads to unnecessary debt. Assess actual needs and prepare a business plan.
• Failing to Assess Repayment Capacity: Ignoring repayment ability affects your credit score. Analyse cash flow and consult with a financial advisor.

Conclusion

Selecting the right MUDRA loan category is crucial for the success of your business. Each category caters to different stages of a business. While the Shishu Mudra loan is best for startups needing loans up to ₹50,000 for initial capital, Kishore is ideal for businesses that want to grow. Tarun, on the other hand, is suitable for established enterprises requiring loans from ₹5 lakh to ₹10 lakh.

To choose wisely, evaluate your business’s stage, needs, and goals. Consider preparing a strong business plan, emphasising how the loan will assist your business. Check MUDRA loan interest rates and other criteria on reliable sites like the PMMY official website.