Step-By-Step Guide For New Businesses To Apply For A MUDRA Loan

CIOReviewIndia Team | Wednesday, 30 September 2020, 05:44 IST

Step-By-Step Guide For New Businesses To Apply For A MUDRA Loan

Are you an aspiring entrepreneur looking to make your business dreams come true? Before you turn your dreams into reality, the first step is to raise capital for your upcoming business venture. From renting office space to purchasing inventory and hiring staff, a new business requires access to capital. Indeed, we believe that the right funding makes all the difference between a successful business venture and a failed idea. This is where MUDRA loans come into the picture.

What are MUDRA loans?

The Honourable Prime Minister of India launched the PMMY (Pradhan Mantri MUDRA Yojana) on 8th April 2015 to help small business owners secure capital easily for their business needs. MUDRA (Micro Units Development and Refinance Agency) loans are offered to MSMEs, SMEs, and individual entrepreneurs. Loans under the MUDRA scheme are categorised into three types based on the loan amount and for whom it is offered.

The maximum amount that a business can borrow under the MUDRA scheme is Rs. 10 lakhs. There are no minimum loan amount criteria making MUDRA loans an excellent choice for new business owners who require minimum capital. Another huge draw of MUDRA loans is that the documentation is minimal, and there are no collateral or security requirements. The repayment period of these loans ranges from 3 years to 5 years. MUDRA loans come with flexible EMI options, making it easy for borrowers to repay the loan as per their convenience.

How can a new business owner apply for a MUDRA loan?

Applying for a MUDRA loan is relatively easy. The first step is to decide on your preferred lender. MUDRA loans are offered by all major public and private sector banks, NBFCs (Non-Banking Financial Corporations), RRBs (Regional Rural Banks), SFBs (Small Finance Banks), and MFIs (Micro Finance Institutions).

There is no restriction on which lender you can choose. It's not mandatory for the borrower to only apply with the bank where he/she has an account. However, note that approaching a lender with whom you have a previous relationship will improve your loan eligibility chances. Additionally, having a good credit score plays a crucial factor in determining your loan approval and interest rate. If you're not sure of your latest credit score, you can check it for free at CreditMantri in just a few clicks.

Finally, make sure to compare different lenders on the market to choose the right one for you. Once you have selected the lender, follow the steps listed below to get your MUDRA loan approved.

Step 1: Prepare the Required Documents

Though the documentation for MUDRA loans is minimal, business owners still have to provide the essential KYC documents. This includes proof of identity (Voter ID, Aadhaar, Driving License, PAN card, etc.), proof of address (EB bill, gas bill, water bill, landline telephone bill, etc.). Additionally, most lenders require business owners to provide proof of business (business registration certificate, GST number, etc.) Having all the required documents handy simplifies the application process.

Step 2: Download and Fill the Loan Application Form

The next step is to download the loan application form available at mudra.org.in. Download the form and fill the required information. Make sure to furnish the correct information – both personal and business-related. Specify the loan amount you require. As a new business, you can apply under the Shishu category of MUDRA loans. You can borrow up to Rs. 50,000 quickly without any additional documentation. If you require a larger loan amount, you have to work with your chosen lender to see if you're eligible.

Step 3: Apply at your Preferred Lender

Make an appointment with the MUDRA loan officer of your preferred lender. Several lenders even offer online MUDRA loan application support, making it hassle-free for applicants to apply for the loan from their home's comforts. The lender then verifies your application and documents. Once verified, the loan amount is sanctioned, and you can start your dream business venture.

Understanding MUDRA Loans

Before you apply for a MUDRA loan, it’s a good idea to know more about it. Here’s all that you need to know about this central government loan scheme for businesses.

MUDRA Loan Categories

MUDRA loans are offered under three categories. They are:

  • Shishu Loan – This category is primarily for new businesses and startups, and the loan amount is up to Rs. 50,000.
  • Kishor Loan – This category is for existing enterprises looking to purchase raw material, new equipment, or expand their business. The loan amount ranges from Rs. 50,000 to Rs. 5 lakhs.
  • Tarun Loan – This category is offered to established enterprises with a few years of experience. The loan amount ranges from Rs. 5 lakhs to Rs. 10 lakhs.

Who can apply for MUDRA loans?

MUDRA loans are offered to individuals and enterprises. The following categories of business entities are eligible for MUDRA loans:

  • Shopkeepers, business vendors engaged in trading, manufacturing, and non-farming activities
  • Textile industries like khadi, handloom, knitting, etc.
  • Businesses engaged in food production like tiffin services, food stalls, eateries, cold storage, etc.
  • Individuals engaged in agricultural activities like dairy farming, fishing, poultry, livestock, sericulture, etc.
  • Businesses in the service sector, like salons, beauty parlours, tailoring shops, dry cleaning shops, gymnasiums, etc.

MUDRA Loan Interest Rates

The interest rate for MUDRA loans varies from lender to lender. It depends on the applicant's profile, credit history, credit score, business requirements, loan category, and loan amount. The interest rate for Shishu loans at SBI starts at 9.75%, with zero processing fees. For the latest interest rates you are eligible for, check with your preferred lender.

MUDRA Loan Incentive for Women

To encourage women in business, the PMMY offers special discounts on the interest rates for women borrowers. Currently, women applicants enjoy a 25 Basis Points (BPS) reduction in the interest rates.

MUDRA Card

The MUDRA card is a debit card issued by lenders to MUDRA loan borrowers. The MUDRA card is given to borrowers whose loans are approved. The approved loan amount is credited in the associated account so that the borrower can withdraw using the card as and when required.

Wrapping Up

MUDRA loans are an excellent way to raise capital for new businesses. Minimal documentation, easy eligibility, and hassle-free loan application make it a convenient choice for new business owners. Follow the steps outlined here and apply for a MUDRA loan to make your business dreams come true.

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