5 Things to Consider Before Applying for A Mudra Loan
The Pradhan Mantri Mudra Yojana (PMMY) was launched in 2015 to help small scale businesses in India acquire working capital finance without challenges. According to reports, nearly 99% of India’s business and industries are now classified under the MSME sector. Therefore, loans disbursed under PMMY can benefit a major chunk of Indian business owners.
Still, opting for a Mudra loan without deliberation may compromise an enterprise’s financial security. A potential borrower should keep some important factors in mind before sending out his/her application.
What should you consider before applying for a Mudra loan?
The following five pointers should help you acquire such credits with ease. Also, considering these factors can help business owners determine whether Mudra credit is the best financial product for them.
- Loan amount necessary
Mudra loan offers up to Rs.10 lakh to borrowers, although there is no minimum limit. However, the exact amount of credit you need determines the category of PMMY loans you can avail. Mudra loans are available in three distinct variants, namely –
- Shishu – Principal amount ranging up to Rs.50,000
- Kishor – Principal amount ranging between Rs.50,001 and Rs.5 lakh
- Tarun – Principal amount ranging between Rs.50,0001 and Rs.10 lakh
Enterprises that require more considerable quantum of funds would need to opt for an alternative source of funding, such as a business loan.
- Documentation process
The documentation process differs based on the category under which you are looking to avail a Mudra loan. Here are some of the essential documents that each category of the borrower would need to submit –
- For Shishu borrowers – Purchase quotation for machinery and/or other business essentials, supplier details, details of machinery and items already purchased.
- For Kishore borrowers – Savings account statement from the last 6 months, estimated balance sheet for the loan tenor, sales tax and income tax returns, documents showing sales in the current financial year before availing this loan, articles and Memorandum of Association.
- For Tarun borrowers – Identity proof, address proof and minority certificate for OBC, SC, ST and others.
In comparison, documents required for a business loan is minimal. Such streamlined documentation process often results in small enterprises opting for a business loan instead of a Mudra loan.
- Age criteria
A borrower is deemed eligible to avail a Mudra loan only if he/she is aged between 18 years and 65 years. Thus, a business owner considering Mudra loans must also check whether he/she is of this eligible age.
- EMI
Even when opting for a Mudra credit, individuals should know their exact monthly liabilities. Doing so would ensure that they can plan repayment beforehand, thereby limiting chances of default. Using a business loan EMI calculator can simplify this prospect, ensuring minimal hassle for borrowers once the repayment period starts.
- Mudra loan benefits for women borrowers
To promote or encourage women entrepreneurs, the government introduced specialised benefits to female business owners under the PMMY scheme. For instance, several lending institutions charge discounted interest rates on Mudra loans to women borrowers.
Additionally, such borrowers must understand the usage of specialised Mudra debit cards. Upon application, specialised Mudra accounts are generated in the borrowers’ name. The principal amount is disbursed to this account, while borrowers acquire a debit card to withdraw and spend this loan sum.
Undoubtedly, such loans play a significant role in helping small-scale industries reach their true potential. However, due to certain drawbacks, business owners often need to rely on more mainstream sources of funding, such as a business loan.
What are the benefits of business loans?
NBFC’s extend specialised lines of credit to established companies and firms, which meet their specific eligibility criteria. The benefits of such loans include the following –
- Substantial credit availability – Instead of limiting loan applications to just Rs.10 lakh, some NBFC’s extend up to Rs.45 lakh as an unsecured business advance. This substantial sum can aid businesses to finance big-ticket expenses and liabilities effectively.
- Longer tenor – While Mudra loans restrict repayment to a term of just 5 years, business loans offer greater flexibility in this regard. New business loans may allow borrowers to service their dues in up to 84 months or 7 years. This significant tenor automatically reduces EMI liabilities for business owners.
- Affordable interest rates – Business loan interest rates are tied into the borrower’s eligibility. For instance, firms maintaining credit rating over 750 can acquire loans at minimal rates, which, in turn, helps increase repayment convenience.
Renowned lenders, such as Bajaj Finserv, also extend pre-approved offers on business loans, personal loans and credits to expedite the process of borrowing. Existing customers of this NBFC can check their pre-approved offer by providing their full name and contact information.
Nevertheless, borrowers who have decided to avail Mudra credit under PMMY should keep the factors mentioned above in mind to reap optimal benefits. Small-scale enterprises can benefit significantly from this centralised scheme’s features, enabling them to continue operations without drastic challenges.
