Mudra loan for New Business

For countless aspiring entrepreneurs in India, the initial hurdle isn't the business idea—it's the capital. Traditional lending institutions often view new businesses as high-risk ventures, making it nearly impossible to secure necessary funding without collateral.

Mudra business loans for startups aim to change this by offering accessible, affordable, and structured financing options specifically designed for new ventures. Since its inception in 2015, the program has disbursed approximately INR 18.39 lakh crore in credit across 34.93 crore accounts.

If you have a business idea and need funding, here’s how a Mudra loan for new businesses can support your venture.

What Are Mudra Loans for New Business?

Mudra loans for new businesses are part of the Pradhan Mantri Mudra Yojana (PMMY), introduced in 2015 to support non-corporate, non-farm small and micro enterprises. The scheme is overseen by the Micro Units Development and Refinance Agency Ltd. (MUDRA) and aims to provide flexible financing options to help small businesses with various needs, such as purchasing equipment, expanding operations, or managing daily expenses.

Mudra loans for new businesses are collateral-free because they are backed by the Credit Guarantee Fund for Micro Units (CGFMU). This feature makes them particularly accessible to first-time business owners. Notably, over 65% of Mudra loans are disbursed to women, demonstrating the program's commitment to promoting inclusive entrepreneurship.

What Are the Different Modes of Funding Under the New Business Loan PM Yojana?

There are two main financing options available under the PMMY scheme:

1. Micro Credit Scheme

This Mudra loan for small business option is perfect for ventures requiring minimal investment. Loans up to INR 1 lakh are available and can be accessed by individuals, self-help groups, and joint liability groups.

2. Traditional Lending Institutions and NBFCs

Startups and new businesses can choose among three types of Mudra loans:

• Shishu Loans: The Shishu category of Mudra loan for new business offers funds up to INR 50,000 for a term of up to six years. This loan is designed for entrepreneurs who need a small amount to start their business operations. Applicants must submit projected earnings plan and can select a preferred lender.

• Kishore Loans: The Kishore category of Mudra loans, serving medium-sized ventures, supports working capital and growth for businesses needing between INR 50,000 and INR 5 lakhs. It has a repayment term ranging from 3 to 5 years. Applicants are required to submit an economic sustainability report.

• Tarun Loans: These loans cater to larger needs, offering amounts from INR 5 lakhs to INR 10 lakhs, with a maximum term of six years. Preference is given to specific sectors such as food products, textiles, and agriculture. Applicants must present a comprehensive business plan.

What Are the Benefits of Mudra Loans for New Businesses?

There are several advantages to applying for a Mudra loan for a new business:

• Collateral-Free Loans: First-time entrepreneurs can access Mudra loans for new businesses without pledging any collateral. Thus, they are suitable for those starting with limited assets.
• Flexible Loan Amounts: The Mudra business loan for startups offers flexible amounts, categorised into Shishu, Kishore, and Tarun based on the size of the business.
• Encourages Entrepreneurship: By providing financial backing, the Mudra loan scheme promotes entrepreneurship and job creation.
• Fast Processing Time: Mudra loans are processed quickly, often within two weeks, especially for loans up to INR 5,00,000. This helps entrepreneurs gain access to funds without lengthy delays.
• Wide Range of Lenders: The variety of lenders, including public and private lending institutions, NBFCs, and MFIs, ensures that more people can access these loans, regardless of their location.
• Affordable Interest Rates: Mudra loan interest rates for startups are generally lower compared to those of traditional lenders.
• No Hidden Fees: Mudra loans for new businesses come with transparent terms and conditions, with no hidden fees or charges, allowing for easy repayment planning.
• Encouraging Women Entrepreneurs: According to recent data, women entrepreneurs have secured over 19.22 crore sanctions of Mudra loans for new businesses, totalling INR 7.93 lakh crore.

What Are the Mudra Loan Eligibility Documents for New Businesses?

Entrepreneurs generally need the following documents to verify their Mudra loan eligibility for startups:

Shishu Category:

• Identity Proof: Driving Licence, PAN, Voter's ID, Aadhaar, Passport.
• Residence Proof: Recent utility bills, tax receipts, official documentation, or domicile certificates.
• Recent photographs (2).
• Supplier quotations and machinery details.
• Business registration and address proofs.
• Proof of social category (SC/ST/OBC/Minority).

Kishor and Tarun Category:

• Identity and Residence Proof: Voter's ID, PAN, Aadhaar, utility bills.
• Business identity/address documents.
• Last 6 months' official documentation, 2 years' financials, and tax returns.
• Project report, projected balance sheet, sales data.
• Partnership/company documents.
• Asset-liability statement if there's no third-party guarantee.

How To Apply for a Mudra Loan?

The government has simplified the application process for Mudra loans for startups by introducing the Udyami Mitra portal, which connects applicants with suitable lenders. The steps to apply are as follows:

1. Visit the official PMMY website or the Udyami Mitra portal.
2. Select “Apply Now” under the Mudra loan option.
3. Choose your status as a new or existing entrepreneur.
4. Fill in your personal and professional details.
5. Provide your business information and select the loan category (Shishu, Kishore, Tarun).
6. Submit the application and required documents either online or at your preferred lender's branch.

Once your application is submitted, the loan processing time typically takes about two weeks. Entrepreneurs can apply for a Mudra loan for their startup through multiple channels, including online portals, traditional lending institutions, and microfinance institutions.

Looking for an Alternative to Mudra Loan?

While Mudra loans are an excellent option for many new business owners, some may require larger amounts of capital.

For instance, a business loan from SMFG India Credit offers amounts of up to INR 75 lakhs* with a repayment tenure ranging from 12 to 48 months. No collateral is required, making these loans especially beneficial for businesses seeking larger sums without having to pledge valuable assets. The interest rates are highly competitive for eligible businesses.

It is important to note that one of the eligibility requirements is that the business should have been operating for at least three years. Apply online or contact us to know more.