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.
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.
1. 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.
2. 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:
1. 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.
2. 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.
3. 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.
What are The Benefits of Mudra Loans for New Businesses?
Mudra loans offer a range of benefits for your new business.
1. No Processing Charges
You don’t have to worry about any pre-loan processing charges while applying of Mudra loans.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
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
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.
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.
24 April 2024
6 mins read
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