Mudra Loan: An Affordable Small Business Loan under PMAY

Updated on: 14 Dec 2021 // 27 min read // Business Loans
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In recent years, the Indian Government has come up with various flagship programs to encourage new generation entrepreneurs. Make in India, Start-up India, and various other initiatives have been launched to help aspiring individuals enter the world of business. While most individuals have the know-how about starting a business, what they lack is adequate capital.

In many cases, insufficient funds act as a deterrent in the initial stages of business. To help small and micro-units, the Government of India started the Pradhan Mantri Mudra Yojana, popularly known as Mudra Loan. Read on to know everything you wish to know about Mudra Loan.

Operating Agency for Mudra Loan

Mudra Loan scheme is operated for and managed on behalf of the Government by Micro Units Development and Refinance Agency Ltd  (MUDRA). MUDRA is set-up by the Government of India to support the development of the micro-enterprise sector in the country. MUDRA does not directly interact with retail customers. It offers refinance support to banks, NBFCs, and other financial institutions for lending money up to Rs. 10 lakhs to micro-business units. You can check the Mudra Loan bank and branches list to find a suitable lender.

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Key features of Mudra Loan

Mudra Loans are Unsecured Business Loans that are offered to new or existing micro-business units only. The purpose of Mudra Loans is to provide these ventures with much-needed capital infusion to expand and grow their operations. The funding under Mudra Loans is provided to cater to the needs of non-corporate and non-farm sector income-generating activities of the small and micro business units.

Following are some of the essential features of the mudra scheme:

  • Loan offered under the Pradhan Mantri Mudra Yojana are unsecured, i.e., there is no need to provide any collateral for availing of this facility.
  • Mudra Loans are disbursed through banks, NBFCs, micro-finance institutions, and several other financial institutions.
  • The money offered as a Mudra Loan should be used only for business-related commercial activities. No personal use of the funds is allowed under any circumstances.
  • Mudra Loans can be availed in the form of term loans, overdraft limit, bank guarantee, and letter of credit as per the requirement of the borrowers.
  • No processing charges are levied against Mudra Loan. Though, a 1% charge might be levied every year for covering the loan under CGTMSE.
  • Repayment for Mudra Loans has to be made through EMIs, where the repayment tenor can extend up to 5 years.
  • Any fixed assets acquired with the help of a Mudra Loan will be hypothecated in favour of lending institutions, i.e., the borrower can not sell these assets without the approval of the lender.

Types of Mudra Loan

Micro Units Development and Refinance Agency Ltd has divided Mudra Loans in 3 segments, subject to the developmental stage of the business. The maximum amount under each category of Mudra Loan has been specified according to the needs of the enterprise.

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Following are the three types of Mudra Loans being offered under this scheme:

  • Shishu: Shishu Loans of up to Rs. 50,000 are provided to entrepreneurs who are looking to start their small business ventures. The maximum amount available as a Shishu Loan is Rs. 50,000. To avail of this facility, the borrower must provide quotations from suppliers if the money is to be used for the purchase of machinery.
  • Kishor:  Kishor Loans are meant for already established businesses who require money to expand their existing business operations. The amounts available as Kishor Loans range between Rs 50,001 to Rs. 5 lakhs. The borrower needs to submit a detailed project report along with essential documents to avail of this facility.
  • Tarun:  Tarun Loans are meant for businesses who have already established their operations and are seeking money to diversify their offerings. The amounts available under this scheme range between Rs. 5,00,0001 to Rs. 10 lakhs. The eligibility criteria for Tarun Loans are a bit more stringent than the other two types of Mudra Loans. Any assets acquired with this loan amount will be hypothecated to the bank.

Mudra Loan Interest Rate

The rate of interest for Mudra Loan is amongst the lowest in the market when compared to other types of unsecured Business Loans. This has been possible due to the fact that the Government offers a subsidy for Mudra Loans.

Following are the guidelines of RBI governing Mudra Loan interest rates:

  • In the case of banks, the Mudra Loan Interest Rates have been linked to MCLR. Banks can charge a spread over the MCLR plus a bank load.
  • In the case of Regional Rural Banks, RBI has capped the Mudra Loan interest rates at 3.5% over the Mudra refinance rate. This capping is applicable when the RRBs offer a loan under PMMY after opting for MUDRA refinance.
  • In the case of NBFCs, RBI has capped the Mudra Loan interest rates at 6% over the Mudra refinance rate. This capping is applicable when the NBFCs offer a loan under PMMY after opting for MUDRA refinance.

How to apply for a Mudra Loan?

To avail a Mudra loan for business requirements, the borrowers need to follow the below-mentioned procedure:

  • Prepare a business report and annex relevant documents like quotations, income tax returns, projected financial, etc.
  • Contact the nearest bank or NBFC of your choice that offers a Mudra Loan.
  • Fill the application form and attach the documents in support of the loan application.
  • Submit the application form with the financial institution.
  • The lender will conduct a verification of the supplier and business premises to ascertain the authenticity of the requirements.
  • On the satisfaction of the financial institution, the Mudra Loan will be sanctioned in your preferred mode.

Mudra Loan is an excellent option to help you expand or establish your business operations. Avail this opportunity to realise your entrepreneurial goals and contribute to the growth of the country.

Also Read: Your Guide to MUDRA Loans Interest Rate, Documents and More

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