Small businesses usually find it difficult to acquire the capital necessary for their growth and development. Since they generally don’t possess any major assets that can be pledged, obtaining business loans without collateral is often the only way to gain access to capital.
That said, the reality is that many small businesses may not qualify for collateral-free loans. Here’s where government schemes like the Mudra loan scheme can help.
What is a Mudra Loan?
The Pradhan Mantri Mudra Yojana (PMMY), also known as the Mudra loan scheme, is a government scheme that was launched on April 08, 2015, by the Prime Minister of India. As per the scheme, micro and small business enterprises operating in the non-farm sector can avail of credit facilities ranging from ₹50,000 to ₹10 lakhs.
The credit facilities under PMMY are disbursed through notified Member Financing Institutions (MFIs), Scheduled Commercial Banks (SCBs) and Non-Banking Financial Companies (NBFCs).
Also Read: Weavers Mudra Scheme
Who can Apply for the Pradhan Mantri Mudra Yojana (PMMY)?
Now that you’re aware of Pradhan Mantri loans for business, let’s take a look at the eligibility criteria for PM Mudra loan that the borrowers need to satisfy to apply for the credit scheme.
- Eligible borrowers include individuals, proprietary concerns, partnership firms, private limited companies, public limited companies and other legal entities. The PMMY scheme is geared towards serving businesses, and budding entrepreneurs in need for capital injection in the form of loans. Hence, individuals requiring capital for business, and established businesses like proprietary firms, private and public limited companies, and legal entities are eligible to apply under this scheme.
- Borrowers must operate in non-farm sectors such as trading, manufacturing, service and allied agricultural activities like poultry, animal husbandry, dairy and beekeeping, among others. Since farming is a primary industry with special loans available for the individuals operating in the industry, the loans under PMMY are available for businesses in other primary, secondary, and tertiary industries such as trading, manufacturing, services, and allied agricultural industries.
- Borrowers must possess a healthy credit history and a good track record of loan repayments with no record of default. Credit history helps the lenders in assessing the risks associated with lending to the applicant. An applicant with clean credit history indicates that the default risk with lending to the applicant is relatively lower, as the past record indicates that the borrower has made timely repayments in the past, and is expected to repay the current loan without any hiccups.
- Borrowers may be required to have the necessary expertise, skills, experience or knowledge required for the activity they propose to undertake. Although the scheme is also beneficial and applicable to budding entrepreneurs, however, if an applicant has solid experience in the same or related industry, the chances of success are relatively higher and so are the chances of on-time repayment.
- Borrowers may need to possess the necessary educational qualifications, depending on the nature of the activity they propose to undertake. Borrowers who have related educational qualifications, experience, etc in the same or related field gives comfort to the lenders. As this indicates that the applicant is equipped with necessary skills to make the business a success. A higher probability of success means that the non-repayment and default risks are low, which is desirable for the lenders.
Purpose of the Pradhan Mantri Mudra Yojana
The primary objective behind the Pradhan Mantri Mudra Yojana is to provide financial assistance to micro and small enterprises operating in non-farm sectors. These entities often come under the ‘unserved and underserved’ section of society with little to no access to credit facilities.
Pradhan Mantri loans for small businesses aim to solve the credit crisis for the underserved section of society by providing loans without any collateral at highly affordable interest rates. Furthermore, the scheme is also expected to promote entrepreneurial spirit, create jobs and contribute to the economic development of the nation.
Quantum of Loan for Pradhan Mantri Loans for Business
The PM Mudra loans are offered in three different types – Shishu, Kishore and Tarun, each with a different quantum of loan.
Under the Shishu category, eligible businesses can avail loans of up to ₹50,000. Under the Kishore category of Mudra loans, businesses can apply for credit facilities ranging from ₹50,001 to ₹5 lakhs. Under the Tarun category, eligible businesses can avail loans of above ₹5 lakhs and up to ₹10 lakhs.
The three schemes under pm small business loan were introduced to cater to different types of businesses generally at a different phase of the business cycle. Mudra loan amount is set according to the purpose and the scale of business. For example, under the Shishu category – the applicants are usually the businesses that require capital injection to set up the business. Under this category the maximum available loan amount is INR 50,000.
Under Kishor Category, the applicants are businesses that require capital for funding working capital. The loan amount under this category can range between INR 50,000 and INR 5,00,000. The primary objective is to facilitate business growth by injecting capital which enables the business to operate efficiently.
Under Tarun category, the applicants are businesses that require capital for expansionary projects, either to fund expansion into new products and verticals, or expansion into new geographies. The loan amount under this category can be minimum INR 5,00,000 and can go up to INR 10,00,000. This is ideal for businesses at a more matured stage that can benefit from expansion.
Benefits of the Mudra Loan Yojana
The Pradhan Mantri loan yojana offers a plethora of different benefits for eligible borrowers. Let’s take a look at some of the key advantages of this scheme.
1. Easy Access to Credit
Thanks to the relaxed eligibility criteria of for Mudra loan, micro and small enterprises can easily get access to credit for meeting their working capital requirements or for business expansion and development. The easier access to credit means increased productivity in the businesses in the micro, small and medium category. With the help of the Pradhan Mantri Mudra Yojana scheme, small and medium enterprises in the underserved categories of the economy are able to do well with increased capital injection.
2. Financial Inclusion
By offering loans to borrowers with little to no access to traditional banking services, the Pradhan Mantri Mudra Yojana ensures financial inclusion of the marginalized, unserved and underserved sections of the society. By catering to businesses in the unserved and underserved segments of the economy, the scheme is able to increase the participation of these businesses in the economy, thus increasing overall productivity, and employment.
3. Flexible Loan Amounts
Eligible borrowers have the freedom to choose the amount of loan they wish to avail themselves. Depending on their requirements, they can get credit facilities ranging from less than ₹50,000 to a maximum of ₹10 lakhs. Under the Pradhan mantri mudra yojana, the borrowers can apply under various schemes such as Shishu, Kishor and Tarun depending upon the requirements and the purpose of the loan application. Shishu yojana is geared towards funding businesses needing capital to start operations, Kishor is more geared towards funding businesses for helping with working capital requirements, and Tarun scheme is focused on funding businesses in need of capital for expansionary projects.
4. Affordable Interest Rates
Unlike term loans and other credit facilities, the interest rates on Mudra loans are highly affordable. Such low rates ensure that micro and small enterprises aren’t burdened with high-interest repayments. The interest rates are lower than that of traditional business loans as these are focused towards elevating businesses under micro and small categories with an aim to help the unserved and underserved substrata of the business economy to grow with availability of cheaper credit backed by the government.
5. No Collateral Requirement
Mudra loans don’t require the borrowers to pledge any asset as collateral to get access to credit, making them suitable for even the most marginalized sections of society with no assets to their name. Collateral serves as a safety net for the lenders, in an event of default by the borrower, the lender can legally liquidate the collateral to recover any outstanding dues. One of the main benefits of mudra loan is that the government and the lender understand the challenges with arranging for a collateral to secure debt, since there is no collateral obligation for mudra loans – it becomes really convenient for the borrowers in micro and small businesses segment to avail loans.
6. Zero Processing Charges
Unlike other traditional loans and credit facilities, borrowers of Mudra loans (Shishu and Kishore) are not required to pay any kind of processing fee at the time of loan application. More often than not, lenders charge a hefty sum in the form of processing fees which ends up reducing the final amount that is released to the borrower. With PMMY, since there are zero processing fees, the borrower ends up getting the entire sum of the loan that was applied for.
7. Boosts Entrepreneurship
By making it easy to gain access to credit, the Pradhan Mantri Mudra loan scheme kindles the entrepreneurial spirit in individuals, empowering them to create more jobs and contribute to economic growth and development. The scheme is focused on helping the unserved and underserved section of the business economy to grow with availability of cheaper credit backed by the government. This helps the businesses in the aforementioned economic section to perform well and contribute towards the growth of the economy by activities such as utilizing the capital efficiently, and creating jobs.
How to Apply for a Mudra Loan Online?
To apply for a Mudra loan online, all you need to do is follow the step-by-step guide mentioned below.
- Step 1: Visit the Udyamimitra website on your preferred web browser. The website will have all the details around application process and the documents requirement
- Step 2: Under the ‘Programs’ tab, click on the ‘Mudra Loans’ option.
- Step 3: Scroll down and click on the ‘Apply here for Registration’ hyperlink. The link will redirect you to the application procedure.
- Step 4: You will be provided a list of three categories – New Entrepreneur, Existing Entrepreneur and Self Employed Professional. Choose the category you fall under and proceed to fill in details such as your name, email ID and mobile number.
- Step 5: Click ‘Generate OTP’ and enter the OTP that you receive on your mobile phone. The OTP is essential to verify the identity, without this the applicant will not be able to proceed with the application process.
- Step 6: Proceed to fill out the application form. Make sure to enter the relevant information in all the mandatory fields. It is also essential to ensure that the information provided is accurate and truthful.
- Step 7: Once your profile is complete, click on the ‘Apply Now’ button under the ‘Loan Application Center’ header.
- Step 8: Choose the category of Mudra loan you wish to apply for. There are several categories such as Shishu, Kishor, and Tarun. Choose the most appropriate one as per eligibility criteria and the loan requirement.
- Step 9: Fill out your business information such as the name of your business, activity and industry.
- Step 10: Fill out all the other information such as future estimates, existing credit facilities you’ve availed of, proposed credit facilities and your preferred lender.
- Step 11: Attach scanned copies of all the necessary documents to the application form and proceed to submit them.
That’s it. Once your Mudra loan application is submitted, you will receive a unique application number, which you can use to track the status of your application. Upon further verification and assessment, the loan status will be changed on the portal, and if required the authorities may ask for clarification or further information / documents to process the application.
What is the Interest Rate of the Pradhan Mantri Loan?
Now that you’ve seen how to apply for a PM Mudra loan, let’s take a look at the rate of interest levied on the loans.
To ensure that borrowers aren’t burdened with high interest rates, the Reserve Bank of India has set certain limits that lending institutions must adhere to. The cap on the interest rates on Mudra loans varies depending on the lender and the applicant of the loan.
For instance, in the case of MFIs, the RBI has imposed a margin cap of 10% for MFIs with a loan portfolio exceeding ₹100 crores and a margin cap of 12% for MFIs with a loan portfolio less than ₹100 crores.
The margin is the additional interest rate over the base reference rate that lending institutions levy on loans. So, if the reference rate is 8%, MFIs are allowed to charge anywhere from 8.8% to 8.96%, depending on their loan portfolio.
In the case of Scheduled Commercial Banks (SCBs), the RBI has categorically stated that the maximum interest rate on Mudra loans must be the base rate or the MCLR (Marginal Cost of Fund-Based Lending Rate).
Regional Rural Banks (RRBs), meanwhile, are allowed to levy a maximum interest rate of up to 3.50% over and above the prevailing MUDRA refinance rate. However, this rate is only applicable if the RRBs provide Mudra refinance loans. For NBFCs, the Reserve Bank of India has set a maximum interest rate cap of 6% over and above the prevailing MUDRA refinance rate for all Mudra loans.
Documents Required to apply PM Mudra Loan to Apply
Before you apply for a Mudra loan online, it is crucial to ensure that you have all of the necessary documents ready. This will help you complete the application process much faster and reduce the chances of rejection. Below is the list for Mudra Loan Document requirement.
Documents Required for Shishu Loans
- Identity proof – PAN card, driving license, passport, voter’s ID, Aadhaar or any other photo ID issued by government authorities
- Address proof – Aadhaar, voter’s ID, passport, property tax receipt or latest utility bill
- Identity and address proof of the business – registration certificate, licence copy or any other document evidencing the identity and address of the enterprise
- Colour passport-size photo not older than six months
- A quotation with the details of machinery and other items to be purchased, including their price and details of the supplier
Documents Required for Kishore and Tarun Loans
- Identity proof – PAN card, driving licence, passport, voter’s ID, Aadhaar or any other photo ID issued by government authorities
- Address proof – Aadhaar, voter’s ID, passport, property tax receipt or latest utility bill
- Identity and address proof of the business – registration certificate, licence copy or other any document evidencing the identity and address of the enterprise
- 2 passport-size photographs not older than six months
- Bank statements for the previous six months attested by the banker
- If the loan amount is ₹2 lakhs or more, balance sheets of the last two years along with income tax and GST returns for the same period
- If the loan amount is ₹2 lakhs or more, the projected balance sheets for the next year (for working capital loans) and projected balance sheets for the entire tenure (for term loans)
- Details of the sales achieved during the present financial year (up until the time of application submission)
- A detailed Mudra project report clearly outlining the technical and economic viability of the project
- In the case of the applicant is a company, a copy of the Memorandum of Association (MoA) and Articles of Association (AoA)
- In the case of the applicant is a partnership firm, a copy of the partnership deed
- In case there’s no third-party guarantee, a statement of assets and liabilities of the business enterprise and the directors or partners
Conclusion
The Pradhan Mantri Mudra Yojana is a game changer for micro and small enterprises operating in the non-farm sectors of the economy. The scheme ensures that self-employed individuals and businesses get access to capital easily without having to pledge any assets or go through an extensive screening process. Additionally, eligible borrowers can apply for a Mudra loan online within minutes through the Udyamimitra portal of SIDBI.
Pradhan mantri loan for businesses has been extremely successful, it has been instrumental in serving unserved as well as underserved substrata of the economy. The scheme has enabled businesses of all scales to operate efficiently and scale up with the help of capital injection in the form of loans. The scheme has helped entrepreneurs to start new small businesses, it has also helped businesses with working capital injection for smooth operation, as well as capital injection for expansionary projects.
Frequently Asked Questions
1. What is PM Modi’s loan scheme for small businesses?
The Pradhan Mantri Mudra Yojana is a flagship loan scheme for small businesses. It was launched by Prime Minister Narendra Modi on April 08, 2015. According to the scheme, small businesses can avail of loans under three categories – Shishu, Kishore and Tarun, each providing a different quantum of credit.
2. What is the PM’s new loan scheme 2023?
The Hon’ble Prime Minister of India launched a new loan scheme known as ‘PM Vishwakarma’ on September 17, 2023. This new loan scheme is designed to provide craftspeople and artisans (Vishwakarma) with the financial support they need to hone their trade and climb up the value chain of the economy.
3. What is the 5 lakhs PM scheme?
Launched on September 23, 2018, the Pradhan Mantri Jan Arogya Yojana (PM-JAY) is a health insurance scheme for the economically weaker section of Indian society. Under PM-JAY, eligible families get a health insurance cover of ₹5 lakhs per family per year.
4. What is the Modi 3000 RS scheme?
The Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) is a unique scheme designed to offer financial support to unorganised workers during their old age. It is a voluntary pension scheme where eligible individuals who contribute to the scheme are entitled to receive a minimum assured pension of ₹3,000 per month once they attain 60 years of age.
