Loan for Business

Mudra Business Loan: How to Apply, Eligibility & Documents (2026)

By Tata Capital
29 December 2025
9 mins read
3224

India is home to the world’s third-largest startup ecosystem. New businesses and start-ups are an important pillar of our growing economy. However, often a major roadblock in starting a business is access to adequate funding due to which, innumerable good businesses don’t go beyond the ideation phase.

The government recognised this problem and introduced one-of-a-kind Mudra loans under the Pradhan Mantri Mudra Yojana (PMMY). Mudra loans empower entrepreneurs to realise their business ideas and enrich the nation.

Do you have a fantastic business idea but are perplexed about funding? Read on to find out how Mudra loans can help your business take off.

What are Mudra loans for new business?

Mudra stands for Micro Units Development Refinance Agency. Under the PMMY, small and micro-enterprises can avail loans up to Rs. 10 Lakhs.

These loans are provided by commercial banks, cooperative banks, non-banking financial institutions (NBFCs), regional rural banks (RRBs), microfinance institutions (MFIs) and small finance banks (SFBs) to eligible enterprises. The government provides funding to these institutions against the loans they provide.

Individuals, MSMEs or enterprises engaged in manufacturing, service or trading sectors can avail Mudra loans for startups.

Here’s a quick summary of how mudra loans work:

1. The government allocates a yearly sum to the above-mentioned financial institutions through intermediary units like Micro Units Development and Refinance Agency bank.

2. New businesses can then avail funds from these financial institutions with low interest and zero collateral if they meet the eligibility criteria.

3. Aspiring entrepreneurs who are unable to secure loans through traditional banking channels are also eligible for a competitive loan under this scheme.

Also, read – Top Government Schemes for Startups and MSMEs in India

What are the different modes of funding under the new business loan PM Yojana?

There are two modes of funding available for your new business under the PMMY scheme.

Funding through Micro Credit Scheme

If you’re planning to start a small business with a low investment, you can consider taking a loan under this category. A maximum loan amount of Rs. 1 Lakh is available. This loan is available to individuals, self-help groups and joint liability groups.

Funding through banks and NBFCs

Through this mode, startups and new businesses can obtain three kinds of mudra loans under pm yojana for new business loans:

Shishu loans

Shishu loan is a perfect Mudra loan for startups. If you’re starting a new business, you can avail a loan of up to Rs. 50000 under this category for a maximum loan tenure of 6 years.

If you are applying for a Mudra Shishu loan, you need to prepare and submit a future earning potential plan for your business. You can also choose your preferred lender.

Kishore loans

Under Pradhan Mantri loan scheme for new business, Mudra Kishore loans are the next offering. Mudra Kishore loans can be useful for you in a variety of circumstances, from managing working capital expenses and paying off creditors, to accessing funds to survive tough business conditions.

Under the Mudra Kishore loan, you can avail a loan amount from Rs. 50,000 to Rs. 5 lakhs. The interest rate is capped at 12% maximum, and you can repay the loan in 3-5 years. You need to submit a report on the economic sustainability of your business while applying.

Tarun loans

Last in Mudra loan for startups are Tarun loans. Under this, you can obtain a loan ranging from Rs. 5 Lakhs to Rs. 10 Lakhs. You are eligible for this loan only if your business is generating an income.

The repayment tenure is flexible for Mudra Tarun loans with a maximum tenure of 6 years. Certain business sectors such as food products, textiles, and agriculture allied businesses get preference for Mudra Tarun loans. You need to submit a well-documented business plan while applying.

Also, read – Government Schemes for Women Entrepreneurs in India

Mudra loan interest rate, tenure & processing time explained

Mudra loan interest rates are not fixed by the government and usually depends on the lender. Rates are generally lower than regular business loans, making them suitable for micro and small enterprises. The loan tenure typically ranges from 3 to 7 years, with flexible repayment options based on the borrower’s cash flow. In some cases, a moratorium period may also be offered.

Processing time for a Mudra loan is relatively quick compared to traditional business loans. If all documents are in order and eligibility criteria are met, approval can take 7 to 15 working days. Loans applied offline may take slightly longer than online applications. Overall, Mudra loans are designed to be affordable, accessible, and timely for small business financing needs.

Also, read – What is the Seed Money Scheme?

Who is eligible for a Mudra business loan for a new business?

Mudra loans are designed to support micro and small enterprises across India. Eligible applicants typically include:

Individual entrepreneurs running non-farm income-generating activities

Small business owners in manufacturing, trading, or service sectors

Startups and new businesses with viable business plans

Micro enterprises needing funds for expansion or working capital

Shopkeepers, vendors, artisans, and professionals such as tailors or repair service providers

Self-employed individuals including freelancers and sole proprietors

Women entrepreneurs and businesses promoted by women

SC/ST/OBC entrepreneurs and minority business owners

Applicants should be Indian citizens with a good credit history and a clear repayment capacity. The business must be engaged in permitted activities under the Mudra scheme and should not be linked to agricultural operations.

Also, read – PM Vishwakarma Scheme

What are the benefits of Mudra loans for new businesses?

Mudra loans offer a range of benefits for your new business.

No processing charges

You don’t have to worry about any pre-loan processing charges while applying of Mudra loans.

No collateral

Mudra loans are collateral-free business loans. If you want to start a business, you can easily access the necessary funds without worrying about a collateral.

Flexible repayment

You can repay the loan in flexible instalments, depending on your business finances and cash flow availability. This allows you to focus on business growth.

Low interest rates

The interest rates for Mudra loans under Pradhan Mantri loan scheme for new businesses is lower than those available through traditional loans. With lower interest to pay, you can better manage your business finances.

Increased accessibility

Often in small towns and rural areas, traditional lending institutions like banks are not available. Mudra loans are available through various institutions like MFIs, SFBs, NBFCs etc. You can access Mudra loans through them even in the remote areas of the country.

Wide range of loan amounts

Under the new business loan PM Yojana, a high Mudra loan amount is available ranging from Rs. 50,000-10,00,000. Your business ideas are no longer constrained by a small range of loan amounts.

Also, read – What is the SAMRIDH Scheme?

What are the Mudra loan eligibility documents for new businesses?

Here is the list of documents you need to apply for a Mudra loan:

1. Aadhar/PAN/Passport for identity proof

2. Current passport size photographs

3. Documents of any previous loan taken

4. Documents like educational documents and bank account statements for credibility

5. Balance sheet of your business for Kishore and Tarun loans

6. A well-documented business plan for Tarun loans

Also, read – CGTMSE Scheme

What is the Mudra card? Benefits & usage for small businesses

The Mudra Card is a RuPay debit card issued to Mudra loan borrowers for easy access to working capital. Key benefits and uses include:

Cashless transactions for business-related expenses

ATM withdrawals to meet urgent cash needs

Flexible usage within the sanctioned credit limit

Reduced interest burden as interest applies only on used amounts

Convenient purchases at POS machines and online platforms

Better cash flow management for small businesses

Secure and widely accepted across India

The Mudra Card helps small business owners manage day-to-day expenses efficiently without repeatedly applying for funds.

Also, read – What is the Dairy Entrepreneurship Development Scheme?

Business sectors covered under Mudra Loans (2026)

Mudra loans support a wide range of micro and small business sectors, including:

Manufacturing units (tools, handicrafts, equipment)

Service providers (salons, repair shops, cleaning services)

Trading businesses (retail shops, grocery, wholesale)

Transport operators (autorickshaws, taxis, small logistics)

Food enterprises (street food vendors, small restaurants, catering)

Agricultural support services (warehousing, cold storage — non-farm activities)

Professional services (consultants, freelancers, IT support)

Artisans & craftsmen (weaving, pottery, traditional arts)

These sectors show Mudra’s commitment to empowering grassroots entrepreneurs and boosting India’s small business ecosystem.

Also, read – Emergency Credit Line Guarantee Scheme (ECLGS)

Tips to boost your Mudra loan approval chances

Before submitting your application, a few practical steps can significantly improve your chances of approval:

Maintain a good credit score and clear existing dues

Prepare a simple, realistic business plan

Ensure KYC and business documents are complete

Keep bank statements showing regular transactions

Apply under the right Mudra category (Shishu, Kishor, Tarun)

Choose a lender familiar with your business location

Show clear repayment capacity through income proof

Avoid applying to multiple lenders at the same time

Also, read – What Is the Market Development Assistance Scheme for MSMEs?

How to apply for a Mudra loan?

Follow these steps to apply for a Mudra loan for new business:

1. Evaluate your business idea and decide the mode of funding through mudra loan.

2. If you choose funding through banks or NBFCs, decide the category (Shishu, Kishore, Tarun) for Mudra loan.

3. Keep the required Mudra loan eligibility documents for new business ready.

4. You can apply directly to the lending institutions mentioned above that provide Mudra loans. Fill in the forms provided and submit the required documents.

5. You can also apply online through the Mudra loan website. Fill out and upload the forms along with the required documents.

6. Once the documents are verified by the relevant lending institution and the loan is approved, the loan amount will be credited to your bank account.

Also, read – NSIC: What is the Subsidy Scheme? The Support & Benefits

Looking for an alternative to Mudra loan?

New businesses and startups are the power horses of any economy. Mudra loans are introduced to remove the bottleneck of funding for new businesses. If you have a business idea in the non-agriculture sector, you can take advantage of the various benefits offered by a Mudra loan.

For new businesses, an alternative to a Mudra loan is a business loan by Tata Capital. With online application process via the Tata Capital App and website, fast application approval and flexible repayment schedule, Tata Capital’s business loans are designed to make new businesses grow and prosper.

Apply for a business Loan

FAQs

Who is eligible for a Mudra business loan for a new business?

Any Indian citizen planning to start a non-farm micro or small business with a viable idea, basic documents, and clear repayment capacity can apply.

How much can I borrow under Shishu, Kishore, and Tarun?

Shishu loans offer up to ₹50,000, Kishore loans range from ₹50,001 to ₹5 lakh, and Tarun loans range from ₹5 lakh to ₹10 lakh.

What Mudra loan eligibility documents are required for a startup?

Applicants generally need KYC documents, address proof, bank statements, a simple business plan, and existing business proof if available.

Is collateral required for Mudra business loans?

No collateral or third-party guarantee is required, making Mudra loans accessible for first-time entrepreneurs and small business owners.

How soon is a Mudra loan disbursed after approval?

Once approved, Mudra loan disbursal usually takes 7 to 15 working days, depending on documentation completeness and the lender’s internal process.

Can Mudra loans be used only for startups?

No, Mudra loans are available for both new startups and existing micro or small businesses across manufacturing, trading, and service sectors.

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Mudra Business Loan: How to Apply, Eligibility & Documents (2026)

What are Mudra loans for new business?

Here’s a quick summary of how mudra loans work:

What are the different modes of funding under the new business loan PM Yojana?

Funding through Micro Credit Scheme

Funding through banks and NBFCs

Shishu loans

Kishore loans

Tarun loans

Mudra loan interest rate, tenure & processing time explained

Who is eligible for a Mudra business loan for a new business?

What are the benefits of Mudra loans for new businesses?

No processing charges

No collateral

Flexible repayment

Low interest rates

Increased accessibility

Wide range of loan amounts

What are the Mudra loan eligibility documents for new businesses?

What is the Mudra card? Benefits & usage for small businesses

Business sectors covered under Mudra Loans (2026)

Tips to boost your Mudra loan approval chances

How to apply for a Mudra loan?

Looking for an alternative to Mudra loan?

FAQs

Who is eligible for a Mudra business loan for a new business?

How much can I borrow under Shishu, Kishore, and Tarun?

What Mudra loan eligibility documents are required for a startup?

Is collateral required for Mudra business loans?

How soon is a Mudra loan disbursed after approval?

Can Mudra loans be used only for startups?

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