An economic survey from 2021-22 branded India as the world’s third-largest startup ecosystem. Another report suggests that startups will contribute 4-5% of India’s GDP between 2022-2027.
Startups are an integral part of the Indian economy, and the Government recognises this. This is why it even launched schemes to boost the zeal of Indian entrepreneurs.
The Pradhan Mantri Mudra Yojana (PMMY) is one such government initiative which helps in providing financial support to small and micro enterprises in India.
Curious to know more about the Mudra loan? Then read on.
What is a PMMY Mudra Loan for Small Businesses?
Introduced in 2015, the Mudra in Mudra loan stands for Micro Units Development and Refinance Agency. The slogan of the Mudra loan is “Funding the unfunded”, aiming to empower small-scale businesses in India.
With the easy loan process and lower interest rates of the Mudra loan, the Government aims to support micro-businesses in trading, manufacturing and services. It also helps to empower women entrepreneurs or business owners in marginalised communities by providing them with concessional interest rates.
During FY 2022-23, about 6,23,10,598 such loans got sanctioned, and the Government disbursed loans amounting to Rs. 4,50,423.66 crores.
Here are some additional details about the loan you should know about.
The Mudra loan for business has been classified into three different categories based on the disbursed loan amount:
Scheme name
Loan amount
Purpose
Shishu
Up to Rs. 50,000
Suited for entrepreneurs looking to set up their businesses. They must submit quotations from suppliers to purchase machinery through the loan.
Kishore
Between Rs. 50,000 to Rs. 5,00,000
Suited for established businesses to grow their operations. Here, borrowers need to submit a project report attached to the loan documents to be eligible.
Tarun
Between Rs. 5,00,000 to Rs. 10,00,000
Suited for well-established businesses wanting to expand their operations or offer various products. They have stricter eligibility requirements, and the loan is disbursed only after careful verification of the loan eligibility.
Key Benefits of PMMY Mudra Loans for Small Businesses
The Mudra loan is designed to benefit and encourage the growth of small businesses:
1. Collateral-free loan: The Mudra loan is a type of unsecured loan. This means you don’t have to put up any security as collateral to the lending institution. A collateral-free loan reduces mental stress and helps you focus on business growth without worry.
2. Loans for specific business needs: The biggest benefit of the Mudra loan is that you can find a loan suited for the size of your business and its purpose. Besides, the loan eligibility requirements are lower for loans of lower amounts, and one can get a loan through the scheme at both banks and NBFCs. This makes it easier for new business owners to obtain a business loan.
Note that businesses can also secure sector-specific loans through the Mudra scheme. For instance, they can avail of loans if they are engaged in businesses that involve food processing, poultry farming, etc.
3. Low interest rates: Unlike traditional loans, business owners can use the Mudra scheme at lower interest rates. This does two things. It makes loan repayments more manageable and allows business owners to direct their funds to run other essential aspects of their business.
4. Easy loan disbursal: The Government has directed financial institutions to provide a streamlined loan approval process. With minimal documentation and complications, applying for the Mudra loan has become more accessible.
5. Fees: The Mudra loan has reduced certain extra charges from business loans. There are no foreclosure charges and no processing fees. This means business owners can repay the entire loan amount before the term ends without incurring additional costs. Plus, they save up to 0.5% of the total loan amount, which typically accounts for processing fees.
The Mudra loan is targeted towards non-farming and non-corporate startups and MSMEs. The following types of business activities are eligible for this scheme:
Business sector
Business activity
Trading sector
Shop set-ups, non-farming business activities, trading activities
Commercial vehicle
Financing purchase of commercial vehicles, including tillers, transport vehicles, tractors, e-rickshaws, etc.
Merchants
Shop set-ups, inventory purchase for non-farming-related activities 9up to Rs. 10 lakhs per borrower/enterprise
Food outlets
Inventory purchases, machinery purchases
Agri-allied business
Poultry, beekeeping, dairy, fisheries
Community Service and PersonalService focused businesses
Step 1: Visit the official PM MUDRA website and select the Udyamimitra portal.
Step 2: Click on “Apply Now” under the Mudra loan section.
Step 3: Choose your category: New Entrepreneur, Existing Entrepreneur, or Self-Employed Professional.
Step 4: Enter the applicant’s name, email ID, and mobile number, then generate and verify the OTP to complete registration.
Step 5: After successful registration, fill in personal and professional details.
Step 6: If assistance is required for preparing a project report, select a hand-holding agency. Otherwise, proceed by clicking “Loan Application Centre.”
Step 7: Select the loan category—Mudra Shishu, Mudra Kishore, or Mudra Tarun.
Step 8: Enter business details such as business name, activity, and industry type (manufacturing, service, trading, or allied agricultural activities).
Step 9: Provide additional details including ownership information, existing banking or credit facilities, proposed credit requirement, future estimates, and preferred lender.
Step 10: Upload the required documents such as ID proof, address proof, applicant photograph, signature, and business identity or address proof.
Step 11: Submit the application. An application number will be generated, which should be saved for future reference and tracking.
Mudra Loan for Specific Sectors: Dairy, Textile, and More
Under the Pradhan Mantri Mudra Yojana (PMMY), loans are available to micro and small enterprises engaged in income-generating activities in the non-farm sector, including manufacturing, trading and services. This broad coverage allows businesses in diverse sectors to access credit, making the scheme relevant for activities such as small textile or garment units and services allied to these industries.
For sector-specific examples such as dairy, beneficiaries typically include allied agriculture or agro-processing activities that generate income outside traditional farming (e.g., dairy processing, food production). These enterprises fall under the wider scope of non-farm income-generating businesses covered under PMMY.
The scheme’s flexibility helps entrepreneurs in textiles, dairy-linked processing, retail, transport and services access loans under Shishu, Kishore and Tarun categories, supporting business setup, expansion or working capital needs.
Comparing PMMY Mudra Loans with Other Government Schemes
The Pradhan Mantri Mudra Yojana (PMMY) is one of the most accessible government credit schemes for micro and small entrepreneurs. It focuses on non-farm, income-generating activities and offers loans up to ₹10 lakh under Shishu, Kishore, and Tarun categories, largely without collateral. Its key strength lies in wide reach, simple eligibility, and suitability for very small or first-time businesses.
Other government schemes for entrepreneurs, such as Stand Up India or sector-specific MSME programmes, typically cater to larger funding needs or defined borrower segments. These schemes may offer higher loan limits, longer tenures, or additional benefits like subsidies, but often involve stricter eligibility criteria, detailed project reports, and longer processing timelines.
Mudra loans prioritise ease of access and scale at the grassroots level, while other schemes are better suited for businesses ready for structured growth. The choice depends on business size, funding requirement, and readiness for formal compliance.
Common Mistakes to Avoid When Applying for a Mudra Loan
Choosing the wrong loan category: This is a common mistake applicants may make. For instance, applying under Kishore or Tarun without adequate turnover or business readiness can reduce approval chances. Loan category should align with the business stage and funding need.
Incomplete or incorrect information: Errors in personal, business, or banking details often delay processing or lead to rejection during verification.
Incorrect business activity selection: Selecting the wrong industry or activity type may make the application ineligible under PMMY guidelines.
Lack of clarity on fund usage: Applicants should clearly explain how the loan will be used, as lenders assess viability before approval.
Ignoring basic eligibility checks: Overlooking eligibility criteria for Shishu, Kishore, or Tarun categories can result in avoidable rejections.
Weak banking history: Irregular bank transactions or unclear cash flow patterns may raise concerns for lenders.
No follow-up after submission: Not tracking the application or responding to lender queries can slow down approval or cause the application to lapse.
Step-by-Step Guide to the PMMY Mudra Loan Application Process
Check Eligibility Confirm that your business falls under eligible non-farm, income-generating activities and that the funding requirement fits within Shishu, Kishore, or Tarun categories.
Choose the Right Platform Apply through a participating bank, NBFC, or the Udyamimitra portal listed on the official PMMY/MyScheme website.
Register and Log In Create an account using your mobile number and basic details to access the application form.
Select Loan Category Choose Shishu, Kishore, or Tarun based on your business stage and required loan amount.
Fill Application Details Enter personal, business, and financial information accurately, including the purpose of the loan.
Upload Documents Submit required KYC, business proof, bank statements, and other supporting documents.
Submit and Track Submit the application and note the application number to track status.
Verification and Disbursal After lender verification and approval, the loan amount is credited to your bank account.
State Bank of India (SBI) – Offers Mudra loans across Shishu, Kishore and Tarun categories via branches and digital channels.
HDFC Bank – Provides collateral-free Mudra loans up to ₹10 lakh with flexible repayment options for micro and small enterprises.
Axis Bank – Active private sector lender under PMMY, supporting business loans to non-farm micro enterprises.
Bank of Baroda – Public sector bank partner offering Mudra loans to eligible entrepreneurs across India.
IDBI Bank – Provides Mudra loans to non-farm income-generating activities, supporting small business credit needs.
Other institutions include various public and private sector banks, regional rural banks, cooperative banks, NBFCs and MFIs authorised as lending partners under PMMY.
Apply for a Mudra Loan Online Today
As a growing economy with much potential, the Government is making amends to boost entrepreneurship in the country. If you have a unique business idea, take advantage of these schemes and embark on the journey into the business world.
Looking for an alternative to the Mudra loan? Apply for a business loan with Tata Capital. We offer low-interest business loans, flexible terms and a hassle-free application process. Visit our website to learn more.
Indian citizens with a business plan for non-farm income-generating activities, like trading, processing and manufacturing and a credit need of up to INR 20 lakh can apply for a Mudra loan through banks, MFIs, or NBFCs under PMMY.
What is the Mudra loan limit?
The maximum Mudra loan limit is INR 20 lakh, as per the Pradhan Mantri Mudra Yojana (PMMY). This limit was increased from INR 10 lakh in October 2024.
Can I get a Mudra loan without income proof?
For loans up to INR 50,000, ITR documents are generally not required. However, lenders may request additional documents based on their policies if income proof is unavailable.
What if I don't pay my Mudra loan?
Defaulters may face legal action, including repayment demands for the full loan amount, interest, and penalties. The government can also initiate civil or criminal proceedings against borrowers who fail to repay.
What is the fee for Mudra?
Mudra loans have no processing fees or foreclosure charges. Borrowers can repay the loan early without extra costs, saving up to 0.5% of the loan amount that is typically charged as a processing fee.
Can I get a Mudra loan for a new business under PMMY?
PMMY allows new entrepreneurs to apply for Mudra loans, especially under the Shishu category. Applicants must propose a viable non-farm, income-generating business and meet basic KYC and lender requirements.
What is the eligibility criteria for a Mudra loan for a dairy farm?
Mudra loans are available for dairy-related income-generating activities such as small dairy units or allied processing. The applicant must be an Indian citizen with a viable business plan and required documentation.
How much funding can I secure under the PMMY Mudra loan scheme?
Under PMMY, funding is available up to ₹10 lakh across Shishu, Kishore, and Tarun categories, depending on business stage, funding requirement, and lender assessment.
Are Mudra loans collateral-free?
Mudra loans are generally collateral-free, particularly for Shishu and Kishore categories. However, lenders may still assess creditworthiness and repayment capacity before approval.
How long does the Mudra loan approval process take?
Approval timelines vary by lender and application completeness. Typically, Mudra loan processing can take a few days to a few weeks after document verification.
Can I use a Mudra loan to expand an existing small business?
PMMY Mudra loans can be used for expansion of existing micro or small businesses, including working capital needs, equipment purchase, or capacity enhancement, subject to lender approval.
29 December 2025
11 mins read
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