5 Tips on Using Mudra Business Loans to Expand Business

Updated on: 12 Dec 2023 // 5 min read // Business Loans
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Whether you are a micro or a small business owner or the one who wishes to start a small business venture soon, you would require enough funds to keep your business venture going. You can initially use your own savings to get things moving, but in most cases, your savings will not suffice for this requirement. But there is no need to be disheartened as the Government of India has introduced several schemes in the last few years to help small and micro-sized business enterprises access financing at subsidized rates. These schemes are designed to help small and micro business enterprises avail loans without any hassles.

Many small business owners find it difficult to access loans and other financing facilities for starting or expanding their business ventures. Out of the various schemes introduced, one of the most popular schemes has been Pradhan Mantri Mudra Yojana Scheme, popularly known as the Mudra Loan. This scheme has helped numerous existing and new business owners access bank loans at subsidized interest rates and expand their business operations easily.

List of BankInterest RatesLoan AmountTenure
SBI Bank8.40%Up to Rs. 10 Lakhs1-5 years
Bank of Maharashtra10.35%Up to Rs. 10 Lakhs1-5 years
Syndicate Bank8.75%Up to Rs. 10 Lakhs1-5 years
Axis Bank10.00%Up to Rs. 10 Lakhs1-5 years
HDFC Bank10.99%Up to Rs. 15 Lakhs1-5 years
ICICI Bank10.99%Up to Rs. 20 Lakhs1-5 years

What is a Mudra Loan?

Mudra Business Loan is a loan scheme introduced by the Government of India which helps non-farming and non-corporate small and micro-sized business enterprises access Unsecured Business Loans up to Rs. 10 Lakh. The implementation of this scheme is performed by Micro Units Development and Refinance Agency Ltd (MUDRA), through various public sector banks, private sector banks, and other financial institutions.

Mudra loan interest rates start from as low as 8.40% per annum and can go up to 12.45% per annum. The maximum loan amount available as a Mudra Loan is Rs. 10 Lakh. If the borrower requires funds of more than Rs. 10 Lakh, then he/she will have to look for other schemes. The repayment tenor for Mudra Loan can vary across lenders but is capped at 84 months.

Types of Mudra Loan

Based on the extent of funding offered, Mudra Loans have been divided into three separate categories, i.e., Shishu, Kishor, and Tarun.

Shishu Loan:

Herein, borrowers are offered loans up to Rs. 50,000 for starting a new business or expanding the existing business operations. The money borrowed can be used to purchase machinery, tools, or equipment.

Kishor Loan:

Under this scheme, loans up to Rs. 5 Lakh are offered to business owners looking to expand their business operations through the purchase of machinery or equipment or any other assets.

Tarun Loan:

Herein, borrowers are offered up to Rs. 10 Lakh for expanding their business operations. The amount available depends entirely on the borrower’s Mudra Loan Eligibility, as determined by the lender.

Mudra Loan Eligibility and Documents Required

If you are contemplating applying for a Mudra Business Loan, then you must meet the following Mudra Loan Eligibility Criteria:

  • The applicant must be an Indian resident.
  • The applicant must be above 21 years and below 60 years of age.
  • The applicant must be the business owner or partner.
  • Applicants must be involved in a trade or business acceptable under the scheme.
  • The applicant also needs to meet any other eligibility criteria specified by the lender.

Following are the documents required while applying for a Mudra Loan:

  • KYC Documents (PAN/ AADHAR/ Voter ID/ Passport/ Driving License)
  • Quotation of machinery or equipment to be purchased.
  • Financial documents of the applicant (ITR and Bank Statements)
  • Registration or License of the business
  • Financial documents of the business (GST Returns/ ITR/ Bank Statements)
  • Loan Proposal with Financial Data

How to use Mudra Loan to expand your business

If you are availing a Mudra Loan for expansion of your business and are unsure regarding the best way to use the money, here are some useful tips to help you out:

1. Purchase new machinery:

If you have a manufacturing unit and are looking to expand your business, then you can use the Mudra Loan to purchase new machinery. The new machinery will not only help you increase your output but will also improve the quality of your products and bring down the cost of production. Moreover, the machinery you purchase with the money can be booked as a fixed asset in your books of account. You can claim depreciation benefits against it as well as book the interest payment as an expense, saving a substantial amount against your tax liability.

2. Purchase tools and equipment:

If you have a manufacturing unit or a workshop or are a service provider, you can purchase new tools and equipment with Mudra Loan. These tools could be mechanical or essential for smooth manufacturing operations. They will help improve the quality of your products significantly. As for a service business, you can purchase computers, inverters, printer, or other assets that can help you deliver your services in a better way.

3. Purchase a vehicle:

You can use the Mudra Loan amount to purchase a vehicle for your business. It can be a two-wheeler, three-wheeler, or a tempo to ferry goods from one place to another. It will reduce your dependency on external transporters and help you save money paid as freight. Moreover, you can claim depreciation benefits by booking them as fixed assets.

4. Purchase raw material:

If you have a small manufacturing business for food products or any other manufacturing unit, you can use the Mudra Loan amount to purchase raw material against cash payment. This will help you get better prices and improve your profitability.

5. Purchase furniture and fixture:

If you want to set-up a new office or shop, you can use Mudra Loan to purchase necessary furniture and fixtures for the same. This will help you equip your premises with all the essential amenities, thereby enhancing your productivity as well as impress your customers.

Mudra Business Loan is an excellent initiative by the Government of India to encourage micro and small business owners to expand their businesses. If you also think that the shortage of funds is stopping you from expanding your business, you should also consider applying for a Mudra Loan.