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Mudra Loan

Are you a small business owner looking for funds to expand your business? Or Are you an aspiring entrepreneur with dreams of starting your own enterprise? In both cases, financial assistance is something that plays a major role. Due to a lack of information about the available credit option, most of you might be approaching informal sources to borrow funds. With a country with more than 6 Crore small/micro units, affordable credit is a huge bottleneck. To bridge this gap and to encourage young entrepreneurs, the Government of India has introduced MUDRA loans.

MUDRA (Micro Units Development and Refinance Agency) loans are a financial scheme to provide financial assistance to micro and small enterprises (MSEs) and promote entrepreneurship. These loans aim to support the growth and development of enterprises by providing access to affordable credit. These loans provide special emphasis on applicants belonging to SC/ST/OBC categories and women entrepreneurs.

MUDRA Loan & Pradhan Mantri MUDRA Yojana (PMMY)

The Pradhan Mantri MUDRA Yojana (PMMY) was introduced in 2015 with the aim to provide MUDRA loans of up to INR 10 lakh to income-generating micro-enterprises involved in manufacturing, trading, and services sectors. MUDRA loan scheme is implemented through various banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIS) across India. This means eligible businesses can approach any eligible bank and apply for a MUDRA loan.

Categories of MUDRA Loans

MUDRA loans are categorised into three types based on the stage of business and funding requirements.

Shishu MUDRA Loan: This category caters to the initial and startup phase of businesses. It offers loans up to INR 50,000 to small entrepreneurs starting their ventures.
Kishore MUDRA Loan: This category targets businesses that have already started operations and need additional capital for expansion. Kishore loans range from INR 50,000 to INR 5 lakh.
Tarun MUDRA Loan: This category is designed for established businesses that require significant funding for growth and diversification. Tarun loans range from INR 5 lakh to INR 10 lakh.

The agency ensures that 60% of the loans will be provided to Shishu category units and the rest to Kishor and Tarun category enterprises. The loans are available as Term Loans, Overdraft facilities, Working Capital Loans and Composite Loans. Applicants must use the loan amount for working capital purposes, acquiring capital assets, and marketing-related activities.

Who Can Apply for MUDRA Loans

The MUDRA loan scheme is available to various micro and small enterprises, including –

Individuals
Proprietary firms
Partnership firms
Private Limited Companies
Public Companies
Any other legal forms

Eligible Business Types Include –

Small manufacturing units
Small shopkeepers
Fruit and vegetable businesses or vendors
Artisans
Allied agricultural activities like pisciculture, beekeeping, poultry, livestock, rearing, grading, sorting, aggregation agro industries, diary, fishery, agri-clinics and agribusiness centres, food & agro-processing, etc.

MUDRA Loans Can be Availed for –

Transport Related Businesses: To purchase vehicles such as autos, goods transport vehicles, 3-wheelers, e-rickshaws, passenger cars and taxis.
Personal service-related businesses: Saloons, beauty parlours, gyms, boutiques, tailoring shops, dry cleaning shops, cycle and motorcycle repair shops, DTP, xerox shops, medical shops, courier shops, etc.
Food-Related Businesses: Any food manufacturing-related businesses like papad making, pickle making, jam/jelly making, sweet shops, small food stalls, catering and canteen services, cold storage facilities, ice making units, ice cream making units, biscuit, bread and bun making, etc.
Textile-Related Businesses: Handloom, power loom, hand and computerised embroidery work, traditional dyeing and printing, apparel design, knitting, cotton ginning, stitching and other non-garment related businesses like bags, vehicle accessories, furnishing accessories, etc.

Eligibility to Apply for MUDRA Loan

Must be an Indian citizen
Has a business plan in manufacturing, processing, trading or service sector for setting up a new business or to upgrade an existing micro business.
The business plan must generate income and employment.
The applicant should not be a defaulter to any bank
Must have a satisfactory credit track record.
Must possess the necessary skills or experience, or knowledge to undertake the proposed activity.
The project’s cost is decided based on the business plan and the proposed investment.
The loan cannot be used for personal needs.

Interest Rate on MUDRA Loans

The lending banks decide the interest rates on MUDRA loans. However, the rates have to be kept reasonable as per the MUDRA guidelines.

How to Apply for MUDRA Loans

Eligible applicants can approach any private sector bank, NBFC, RRB, MFI, state cooperative bank and urban cooperative bank to apply directly. To apply for a MUDRA loan online, visit www.udyamimitra.in website.

Documents Required to Apply for MUDRA Loans

For Shishu Loans

Identity proof
Residence proof
2 photographs
Business proof
Quotation for machinery and other equipment purchase

For Kishor/Tarun Loans

Identity proof
Residence proof
2 photographs
Business proof
Quotation for machinery and other equipment purchase
Details of the supplier of machinery
Business proof – ID proof, address proof of the enterprise, copies of licences, registration certificates, ownership and business identity related documents.
Category proof in case of SC/ST/OBC and minority applicants.
For existing businesses – Unaudited balance sheet for last 2 years or (for loans above Rs.2 lakh)
For new businesses – Projection for one year (for loans above Rs.2 lakh)

Collateral Requirement for MUDRA Loans

MUDRA loans are typically provided without the requirement of collateral or security for loans up to INR 10 lakh. However, lending institutions may require the borrower to provide suitable guarantees and collateral for loans exceeding a certain amount. In required cases, banks can utilise the Credit Guarantee Scheme Cover provided by the government.

Repayment Tenure of MUDRA Loans

The repayment tenure for MUDRA loans depends on the borrower’s cash flow and the nature of the business. However, the maximum tenure currently provided by MUDRA is 36 months or 3 years. Shishu loans, however, are an exception, as the tenure can be extended up to 5 years.

Processing Fee of MUDRA Loans

Some banks charge an upfront fee to process the MUDRA loan. However, the fee has been waived for Shishu loans by most of the banks.

Benefits of a MUDRA Loan

Easy to obtain: The MUDRA loan can be easily obtained from any government-authorised bank or financial institution. With a MUDRA loan card, it is quite simple to withdraw the approved amount without going to the bank in person.

Low-interest rate: Mudra Loans come with a lesser interest rate with a maximum monthly interest rate of 1%, which is fairly low.

Longer repayment tenure: The repayment tenure for MUDRA Loan is longer, which gives small businesses more time to repay the loan.

No Collateral: MUDRA loans do not require the borrower to pledge any collateral to obtain the loan. Hence the loans are collateral-free.

Helps create jobs: MUDRA Loan contributes to creating numerous new jobs and sources of income for families.

FAQs on Mudra Loan

What does MUDRA mean?

The Indian government founded MUDRA (Micro Units Development and Refinance Agency Ltd) to provide financial help to microenterprises. The PM MUDRA loan aims to assist small businesses with financing facilities via several financial organisations, including banks and NBFCs.

What is the maximum amount that can be borrowed under a MUDRA loan?

After submitting the relevant paperwork, you can acquire a maximum of Rs.10 lakh at a minimal interest rate.

What is the complete procedure for applying for a Mudra Loan?

- To propose the Mudra Yojana business plan, contact the local public or private bank in your area.
- You need to submit a complete description of the plan.
- The bank will ask you to complete an application form.
- If the applicant already has a current account with a bank or is a first-time entrepreneur, the application will be processed swiftly.

Can women get MUDRA loans easily?

MUDRA funding is available to women entrepreneurs as part of the government’s efforts to encourage female entrepreneurship. A MUDRA loan credit of up to Rs.10 lakh is available to female entrepreneurs who run non-farm businesses like manufacturing or service sectors.

Is there any subsidy available for MUDRA loans?

There is no subsidy for MUDRA loans. However, if the loan proposal is linked to some government scheme that gets a capital subsidy, such a loan is eligible for subsidy.

What is MUDRA Card?

The MUDRA Card offers borrowers a convenient and flexible way to access credit. It provides a working capital arrangement in the form of a Cash Credit (CC) or Overdraft (OD) facility. The MUDRA Card is issued as a RuPay debit card, which can be used to withdraw cash from ATMs as well as make purchases using Point of Sale (POS) machines. One of the key advantages of the MUDRA Card is that borrowers can repay the borrowed amount whenever they have surplus cash available, helping to reduce the overall interest cost.

How much time would it take to sanction a MUDRA loan?

The turn-around time for processing Shishu loans upon receiving the complete information is 7 to 10 days.