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Everything you need to know about MUDRA Loans

  • Highlights

  • PM MUDRA Yojana offers up to Rs.10 lakh to micro enterprises

  • The loan helps SMEs avail finance easily

  • The loan is spread across 3 categories: Shishu, Kishore and Tarun

  • Use the loan to invest in various business needs

For the increasing number of small and micro enterprises in India that engage a workforce of more than 12 crore, getting formal finance is often a challenge. Whether for working capital, buying assets or for marketing-related expenses, borrowing from informal sources is not only costly, but also causes a hindrance to business success. To lend a helping hand to these enterprises, the government has launched the MUDRA Loan Scheme.

Announced by Narendra Modi in 2015 to ‘fund the unfunded’, the Prime Minister MUDRA Yojana (PMMY) offers three types of finance to business owners of existing micro units as well as those who plan to set up new businesses:

1. Shishu: Loans up to Rs.50,000
2. Kishore: Loans between Rs.50,001 and Rs.5 lakh
3. Tarun: Loans from Rs.5,00,001 to Rs.10 lakh

Read further to gain a better understanding about MUDRA loans and how they can benefit you.

What is a MUDRA Loan and who extends it?

A MUDRA loan is a collateral-free term loan offered to deserving individuals, sole proprietorships, partnership firms, private limited companies and public companies as well as other legal forms of establishments and entrepreneurs. The maximum loan amount you may borrow is Rs.10 lakh.

The announcement of the PMMY came alongside the establishment of the Micro Units Development & Refinance Agency Limited (MUDRA Ltd). This agency was set up by the government to monitor and oversee the PMMY. MUDRA has given the right of extending this loan to all bank branches as well as certain NBFCs and NFIs that finance micro enterprises. So, you can avail of the MUDRA loan from any of these financial institutions.

Benefits of Working Capital Finance for your Business

How does this loan benefit me?

The MUDRA Loan Scheme offers the following advantages and uses:
- This loan doesn’t require collateral, so you can borrow without risking any personal or business asset.
- This loan can be used by you to set up your micro enterprise.
- This loan can be used by you to fuel, grow and expand your enterprise with funds up to Rs.10 lakh.
- This loan allows you to purchase commercial vehicles, cars or two-wheelers.
- This loan allows you to renovate your office, buy machinery or equipment, or meet your working capital needs.
- This loan also allows you to take advantage of the overdraft facility amount of up to Rs.5000 as part of the Pradhan Mantri Jan-Dhan Yojana.

- You can also apply for a MUDRA Debit card that gives you instant access to funds in a hassle-free manner.

Am I eligible to apply for the loan?

Apart from the basic entities listed above, if you are part of a Non-Corporate Small Business Segment (NCSBS) then you are eligible for the loan. Also, if you are part of a firm or are an individual operating as one of the following you are eligible for this loan: a small manufacturing unit, service sector unit, shopkeeper, fruit and vegetable vendor, truck operator, food-service unit, repair shop, machine operator, artisan, etc.

To get the loan, you must ensure that you have an adequate credit track record and have not defaulted with any financial institution. Additionally, you need to prove that you have the needed skillset or experience to start or continue the work you have chosen.

You will also require a specific set of documents depending on the kind of loan you are applying for. The common documents required are MUDRA application form, photo identity proof, address proof, and bank statement.

What do I need to know about the loan and its repayment tenor?

With respect to the processing fee, each bank or institution may charge an upfront fee as per their internal guidelines. Most lenders generally waive off the fee for the ‘Shishu’ category. The interest rate for the loan is decided on the internal policy of the lender; however, the government has ensured that the rate be affordable and reasonable. In terms of the tenor, you will be allowed to repay this loan based on your generated cash flow and assets. You can also avail refinance from MUDRA for a maximum of 36 months.

With the help of this loan, women entrepreneurs, those belonging to Scheduled Castes, Scheduled Tribes or Other Backward Classes can get the finance required to earn a dignified livelihood via micro enterprises. On May 29, 2018, PM Modi revealed that financial institutions have extended loans up to Rs.6 lakh crore to over 12 crore beneficiaries, 28% of whom are first-time entrepreneurs and 74% are women and 55% belong to SC/ST and OBC category. You too can now avail the required capital to realize your entrepreneurial dream.

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