The micro, small and medium enterprises in India are in a constant struggle to acquire capital in the form of loans from financial institutions. Still, reports suggest that these smaller businesses have lower delinquency rates when compared to the default rates of larger corporations. As per a survey conducted in January 2020, the non-performing assets for the MSME segment was only 12.5% compared to 19.7% for the bigger companies.
- Since the implementation of the Goods and Services Tax (GST), more than 9.2 million MSMEs have registered under the same.
- This corresponds to a 50% increase when compared to MSME registrations under the previous tax regime.
Even so, NBFCs shy away from lending capital to these smaller enterprises. A Mudra loan is often the best recourse for such companies when they require hassle-free credit to meet their business expenses.
What is a Mudra loan?
MUDRA or Micro Units Development and Refinance Agency loan scheme is a Government of India initiative under Pradhan Mantri Mudra Yojana (PMMY). Individuals, MSMEs and SMEs can avail business finance from participating financial institutions under this scheme. Eligible applicants can avail up to Rs.10 lakh as business credit under this scheme, although there is no minimum loan amount.
One can opt for a Mudra loan under one of the three following categories –
- Shishu – These loans are perfect for start-ups and new businesses, where the principal amount is not likely to exceed Rs.50,000.
- Kishor–Businesses, looking to borrow more than Rs.50,000 but less than Rs.5 lakh, can avail a Mudra loan under the Kishor category.
- Tarun – Established enterprises can opt for Tarun loans, where the principal ranges between Rs.5 lakh and Rs.10 lakh.
Interest rates for Mudra loans
The rate of interest on such loans depends on several factors, such as –
- Quantum of credit
- Borrower’s repayment history
- Borrower’s credit rating
Businesses that have a history of delinquency may fail to secure a Mudra loan. You must organize your business finances properly so that it does not reflect poorly on the company’s creditworthiness.
- Around Rs.92,262 crore was disbursed as a credit to the MSME sector in 2019. Still, the NPA rate for the micro-business segment in January 2020 was just 9%.
Eligibility criteria for Mudra loans
Mudra loans are business loans, meaning one can only avail the same to cover business-related expenses. Thus, only the following are allowed to apply for such a credit –
- Individuals aged between 18 and 65 years
- Small business owners
- Manufacturers, retailers, traders, and artisans
Documents required for Mudra loans
Although the exact document requirements can vary from one lender to the next, listed below are some of the general documents that one would need to avail such a loan for business–
- A detailed business plan.
- Duly filled form for Shishu, Kishor, or Tarun category, based on the quantum of loan.
- Applicant’s KYC documents.
- Identity proof (any one of the following – Aadhaar card, Voter’s ID, passport, or driving license).
- Residential proof (any one of the following – Aadhaar card, Voter’s ID, bank statement, passport, or utility bills).
- Business address proof.
- Income proof (income tax returns, registrations, licenses, and sales tax returns).
- Passport-sized photographs.
Readying these documents before proceeding with the Mudra loan application can streamline the entire process. It should help you avail such credit without facing rejections. Easy availability of credit should help avoid financial mistakes made by business owners.
Benefits of Mudra loans
Here are some reasons why smaller businesses should seek loans under the PMMY scheme –
- Mudra loans come under the Government of India’s Credit Guarantee Schemes.
- Mudra loans are collateral-free, meaning borrowers do not need to pledge any asset against the offered credit.
- The sanctioned quantum can be used as a term loan or as an overdraft facility as well.
- One can avail of these loans using Mudra cards too.
- Women entrepreneurs, availing such a loan, can take advantage of a discounted interest rate (interest rates lowered by 25 basis points).
Reputed lenders, such as Bajaj Finserv, do not charge any prepayment fees on its business loans, ensuring greater affordability.
The NBFC also provides pre-approved offers to ensure a swift and convenient loan application. These offers are available on business loans, personal loans and several other financial products. One can check his/her pre-approved offers by sharing details like name and contact information.
Learning these factors about a Mudra loan should assist entrepreneurs in trying to avoid a business financial crisis. Such credits can shape new businesses and ensure the growth of the Indian economy.