How Mudra scheme is helping Startups in getting business loans in India?
"To fund the unfunded" is the key mantra of Micro Units Development and Refinance Agency (MUDRA), which is performed by providing refinancing support to banks and NBFCs for startups, micro units and Small and Medium Enterprises (SMEs) across India. Most of the startups require sourcing, funding and sponsoring of their businesses, as they restrict themselves in investing all of their savings at business’s initial stages. Past few years or a decade has been a great time for startups to grow, expand and flourish. Unfortunately, this decade didn’t start well for any industry with the outbreak of Coronavirus (COVID-19) in Jan 2020. By this April 2020, nations worldwide have suffered severe impact on their economies, businesses, stock markets, employment rate, trades, etc. However, in this dark phase of Coronavirus, various financial institutions of India, such as private and public sector banks, Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), Regional Rural Banks (RRBs), Small finance banks, and urban and state co-operative banks, etc. with the help of MUDRA are providing working capital loans and business loans for startups, as well as for other business entities at comparatively lower interest rates.
MUDRA Scheme
MUDRA scheme under Pradhan Mantri Mudra Yojana (PMMY) has always supported numerous financial institutions in providing funding support to Startups, individuals, SMEs, businesses and micro units. PMMY’s prime focus area is to provide funds to Startups and SMEs engaged in services, trading and manufacturing sectors. MUDRA also manages Mahila Uddyami Scheme that is a special refinance scheme for women entrepreneurs. MUDRA loan scheme has also partnered with MFIs to support individuals and startups in availing loans up to Rs. 1 lakh under Micro-credit scheme.
Loan Amount and Features
Startups that require loan amount maximum up to Rs. 10 lakh can apply for Mudra loan via visiting the nearest desired bank providing Mudra loan. However, startups looking for lesser loan amount up til Rs. 50,000 can also avail loan under this scheme. There is no minimum loan amount limit under this loan scheme. Business loan interest rates offered under Mudra scheme are comparatively lower, as compared to other financial institutions and shall vary from bank to bank. The maximum repayment tenure is of 60 months with no collateral/security to be submitted. Even there is no processing fee charged for loans availed under Mudra scheme.
Types of Mudra Loan
Mudra loan is further divided into three categories for your benefit named as Shishu, Kishor and Tarun. Under Shishu loan category maximum loan amount that can be avail by startups is of Rs. 50,000, wherein you can invest the amount in any business related activity. If you are in need of some extra cash, then you can opt for the second loan scheme that is Kishor in which the cash limit that you can get is from Rs. 50,000 to Rs. 5 lakh. This amount can be used in buying machinery, equipment, paying rent, hiring staff, and purchasing raw materials, inventory or stocks. The third loan scheme, named as Tarun is for existing startups that plan to expand their business or to buy heavy equipment or office space. The loan amount that can be availed under this category is from Rs. 5 lakh up to Rs. 10 lakh.
Eligibility Criteria for Startups
- Age criteria: Minimum 18 years and maximum 65 years
- For startups or micro/small business units
- Collateral: Not required by lenders
- Credit score: Not checked by banks and NBFCs
- Businesses engaged in services, trading and manufacturing sectors, only
- Startups with no financial history can also apply
- For startups to be started only in India
- Business owners should be citizens of India
How to apply for Mudra Loan?
To apply for Mudra loan, you need to simply visit the official website of Mudra or click here https://www.mudra.org.in/Home/PMMYBankersKit and download the loan scheme specific form. After filling the form, you need to visit the desired bank branch and submit the application form along with the required documents as mentioned on the checklist, online. The bank’s representative will further proceed the loan formalities. The bank will verify, cross check and validate the submitted documents along with application form. After the bank is convinced and satisfied with the documents, it shall approve the loan and the loan amount shall get into your bank account within 7-10 working days. The loan approval and disbursement time cycle varies from bank to bank.
Online Process
The Mudra loan application can also be performed online by visiting the official website of the bank and filling and submitting the form online. Same way the bank’s representative will call you and direct you the further loan process. The approval and denial of loan application depends on the sole discretion of the respective bank, financial institution or lender. Mudra is not responsible for any loan application’s denial or acceptance.
Conclusion
Mudra loans for startups are majorly offered in form of working capital loans or term loans. Startups are required to apply to only that financial institution offering Mudra loans, as not every bank or NBFC is authorized to provide Mudra loan. Mudra’s main aim is to promote entrepreneurship among the youth and helping startups in their growth and expansion by providing funding support. The most important point to remember is that Mudra loan does not lend money directly to individuals, neither it has any mediator to work for them. However, they have tie-ups with financial institutions that lend money with the support of Mudra scheme, initiated by the Government of India and managed under Pradhan Mantri Mudra Yojana (PMMY).