Mudra Loan

What is a Mudra Loan?

A Mudra loan is an unsecured small business loan given by banks, NBFCs (non-banking financial companies), MFIs (microfinance institutions), etc. to non-farming businesses. Entrepreneurs can borrow amounts of up to Rs. 10,00,000 based on the size and stage of development of the business.

The Mudra loan scheme aims to facilitate and enhance financial access for non-corporate small business sectors (NCSBS), transforming them into catalysts for economic growth and job creation. The loans are available in three categories - Shishu, Kishore, and Tarun, which indicate the growth stage and funding needs of the micro-unit or entrepreneur. These types of Mudra loans also serve as reference points for the subsequent phases of progression and expansion.

Now, let's take a quick look at what MUDRA and the Pradhan Mantri Mudra Yojana scheme is.

What is the Pradhan Mantri Yojana Scheme?

MUDRA or Micro Units Development and Refinancing Agency is an institution established by Prime Minister Narendra Modi in 2015. Launched under the Pradhan Mantri Mudra Yojana (PMMY) scheme, the body aims to provide development and refinancing opportunities to the MSME sector. Mudra aims to collaborate with banks, Micro Finance Institutions (MFIs), and other lending institutions at the state or regional level to provide microfinance aid.

Seeing the financing needs of budding entrepreneurs and existing small businesses, the Pradhan Mantri Mudra Yojana scheme is prime among the many programmes started by the government in favour of such ventures. Not only does this promote the inception of plenty of new businesses but it also contributes towards the country's industrial and economic (GDP) growth. The MSME sector is growing ever faster and the authorities are coming up with more initiatives such as the PMMY.

Features of the Mudra Loan

Now that we have understood what Mudra loans are and what the Pradhan Mantri Mudra Yojana scheme is, let's learn the many factors that make it an important scheme for entrepreneurs and the entirety of the MSME sector.

Specialties of Mudra Loans:

• Categorisation: Mudra loans fall into three segments based on the stage of growth and funding needs of the borrower. These categories include Shishu (up to ₹50,000), Kishore (up to ₹5 lakh), and Tarun (up to ₹10 lakh).
• Focus on Micro and Small Enterprises: Mudra loans specifically target micro and small enterprises, including small manufacturing units, service sectors, and traders. The loans aim to provide financial support to these enterprises and promote their growth and development.
• Modernised Application Process: The application process for Mudra loans is simple and stress-free. You can apply for these loans through various lending institutions, including banks, MFIs and NBFCs like FlexiLoans. The option for online application of a Mudra loan is also available in several institutions.
• Diversity of Purposes: Mudra loans can finance various business purposes, such as working capital requirements, purchasing equipment or machinery, renovating premises, and expanding business operations.
• Loan Disbursement: Various financial institutions disburse Mudra loans, including public sector banks, regional rural banks, private sector banks, MFIs, and NBFCs.
• Mudra Card: As part of the Mudra loan programme, you will receive a unique debit card known as the Mudra card. This card will enable you to conveniently access and utilise the sanctioned loan amount for your working capital needs. The Mudra card allows borrowers to perform online transactions, as well as make withdrawals and conduct Point-of-Sale (PoS) transactions at ATMs and other authorised merchant outlets.

Benefits of Mudra Loans

Mudra loans come with a hoard of benefits that make them an attractive and affordable financing option for small businesses or businesses that are just starting. These benefits include:

• Availability: The inclusion of almost all kinds of financial organisations like banks, MFIs, NBFCs, etc. makes it easier for you to get a Mudra loan. You can also opt to apply for a Mudra loan online from the government website.
• Unsecured: Mudra loans are typically collateral-free, which means you will not have to provide any security or collateral to avail of the loan. Having the burden to pledge security may deter smaller businessmen from going for a loan, but the Mudra unsecured business loan is for everybody.
• Repayment Flexibility: Mudra loans offer flexible repayment options based on your business's cash flow and sale cycle. The Mudra loan repayment period can range from 3 to 5 years, depending on the category and the specific terms set by the respective lending institution. Tools such as online Mudra loan EMI calculators also help make determining and planning EMIs better.
• Curated Interest Rates: The interest rates on Mudra loans may vary based on the lending institution and the borrower's profile. However, these loans generally have competitive interest rates, making them affordable for you as a small business or an entrepreneur.
• Variety in Businesses: The Mudra loan scheme also covers businesses occupied in several different activities that can avail of the loan. These activities cover the likes of manufacturing, trading, personal services, food supply, etc. This spectrum makes sure you can access Mudra loans business finance no matter the business you decide to go in (as long as it qualifies as non-farming).

Eligibility Criteria for Mudra Loans Scheme

You and your business have to meet certain criteria to have the correct Mudra loan eligibility.

Mudra Loan Eligibility Factors:

• You should be an Indian citizen and resident.
• You should be between 18 and 65 years old. Keep in mind that the guidelines dictate that you have to have made the final payment of the loan before the age of 65.
• The business should be a non-farming enterprise engaged in activities like manufacturing, trading or services.

Entities With Mudra Loan Eligibility:

• Individuals, startups, business owners, entrepreneurs, and MSMEs
• Traders, artisans, shopkeepers, vendors, small manufacturers, retailers, etc. engaging only in non-farming activities
• Women Entrepreneurs
• Entrepreneurs belonging to SC/ST/OBC category

Enterprises With Mudra Loan Eligibility:

• Private and Public Limited companies
• Sole Proprietorships
• Partnerships
• LLPs (Limited Liability Partnerships)
• NGOs
• Trusts
• Co-operative Societies

Mudra Loan Eligibility Documents

The documentation process for Mudra loans is relatively simple and requires basic documents related to you and your business, depending on the lender you choose to go for. Here's a basic list of Mudra loan eligibility documents:

• Identification proof: Aadhaar card, PAN card, passport, driving licence, voter ID
• Address proof: Latest utility bill (like electricity bill), Aadhaar card, PAN card, passport, etc.
• ITR filings/bank statements of the individual
• Business identification and verification documents: certificates, licences, GST certificates, etc.
• Tax filings and bank statements of the business.

Mudra Loan Application Procedure

The process to apply for a Mudra Loan is pretty simple and straightforward. With Mudra loan eligibility, you can apply for the loan either online through an official government website or through the online Mudra loan application portal of your lender of choice. Either way, the loan process goes like this:

Step 1: Start by determining the loan category that best suits your business requirements. MUDRA offers three categories: Shishu, Kishore, and Tarun. Select the category based on your funding needs.

Step 2: Do some research about various financial institutions and finalise the one that offers terms best suited for your situation. You can check the list of participating banks on the official MUDRA website or inquire with your local bank. Some further research will give you an idea about the eligibility and document requirements of the particular institution.

Step 3: Next, gather the necessary Mudra loan eligibility documents. These may include identity proof, address proof, business proof, income proof, bank statements, and any other documents as specified by the lending institution.

Step 4: Visit the bank or financial institution which you have chosen that is a part of the MUDRA loan programme and fill out the application form. You can obtain the MUDRA loan application form from the bank and duly fill it with accurate information. Provide details about your personal information, business details, loan amount required, and other relevant information. You can also choose to apply online.

Step 5: Submit the completed application form along with the necessary supporting documents to the bank or financial institution. Ensure that all the required documents are in the prescribed format.

Step 6: The lender will then review your application and conduct the necessary due diligence, including verifying your business details and assessing your repayment capacity. They may also request additional documents or information during this stage.

Step 7: If the bank or financial institution approves your Mudra loan application, they will provide you with a loan offer, including the loan amount, interest rate, repayment schedule, and other terms and conditions. This is the point where you may be able to negotiate on some of the terms of the offer, depending on the policy of the lender. Upon acceptance of the offer, you will receive the funds in your bank account.

Types of Mudra Loans

For the convenience of the borrower as well as of the lender, Mudra loans fall into 3 types. Each of these types depends upon the loan amount they grant and the stage of the business availing of it.

These MUDRA loan categories address the unique financing needs of micro and small enterprises across different stages of their business lifecycle. The loan amount, interest rates, repayment terms, and eligibility criteria may vary based on the category chosen and the specific policies of the participating banks or financial institutions. The 3 types of Mudra Loans are:

1. Shishu: This loan category aims to aid small businesses or startups in their early stages. It provides loans up to Rs. 50,000 to help you establish your business and meet basic initial financial needs.
2. Kishore: The Kishore category offers loans ranging from Rs. 50,001 to Rs. 5 lakhs. It is useful for businesses that have already been established and need additional funds for purposes like expansion, working capital, equipment purchase, or other business-related needs.
3. Tarun: The Tarun category provides loans from Rs. 5,00,001 to Rs. 10 lakhs. It caters to well-established businesses seeking higher amounts of financing for growth, diversification, technology upgradation, or other significant business requirements.

Industries that Can Apply for Mudra Loans

The guidelines specify certain types of industries or businesses that can apply for a Mudra loan. One basic rule for the kind of business with Mudra loan eligibility is that it has to be a non-farming business. Here are some examples of eligible businesses:

• Transport Vehicle: This category covers loans for vehicles used in the transportation of goods and passengers. It includes auto rickshaws, small goods transport vehicles, three-wheelers, e-rickshaws, taxis, tractors, tractor trolleys, power tillers, and two-wheelers used for commercial purposes.
• Social and Personal Services: Loans are available for businesses providing personal consumption services such as gyms, parlours, medicine shops, tailoring services, dry cleaning shops, and similar services.
• Food Sector: Loans support businesses involved in basic food services such as food stalls, achaar-papad making, catering services, food preservation, and cold storage facilities.
• Textile: This category includes loans for businesses engaged in textile-related activities such as embroidery, apparel designs, handlooms, power looms, knitting, and job work.
• Traders and Shopkeepers: Loans are available for individuals running shops for trading and business purposes.
• Equipment Finance Scheme: This scheme provides loans for setting up micro-enterprises and purchasing machinery with a value of up to Rs. 10 lakhs.

How FlexiLoans Can Help?

The MUDRA loan scheme aims to help support and refinance MSMEs. The intention behind it is to help start and develop businesses in the MSME sector, which accounts for almost 30% of India's GDP and employs around 110 million people.

Just like the government, FlexiLoans is also eager to help budding entrepreneurs realise their dreams. Our range of affordable business loans aims to deliver finances to any businessman in need. With loan amounts starting at just Rs. 50,000 and going up to Rs. 1 crore, and interest rates as low as 1%, we have options available for everyone.

FlexiLoans MSME Business Loan will enable you to take your small business to new heights with a 100% online application, making our financing options available anywhere in the country. Our quick processing feature ensures there is never a delay in fulfilling your dreams. Negotiable interest rates and zero hidden charges assure complete transparency. With FlexiLoans' Mudra loan, there is just no end to the business possibilities.

Check your eligibility with us and apply now to start fulfilling your business dreams.

Frequently asked questions