Businesses often require capital for various purposes like inventory management, infrastructural development, expansion of assets, etc. However, it is not always possible to manage these capital requirements from the earnings of your business. In such a scenario, business loans can come to your rescue.
While business loans are a more prevalent and preferred option, an other economically feasible option is available in the market too. Mudra loans, launched by the government, are similar to business loans and render financial aid to micro, small, and medium enterprises, also commonly known as MSMEs.
What are Business Loans?
A business loan is a financial instrument offered by banks or non-banking financial institutions (NBFCs) to the business or organisation for a specific tenure at a competitive interest rate. Business loans generally do not require collateral security; however, the collateral security clause depends upon the loan amount and the applicant’s profile.
Some of the key features of business loans are –
- Digitalised Procedure – Banks and other financial institutions have started offering online and digital business loan procedures to deliver a smooth and seamless experience to their customers.
- High Loan Amounts – Enterprises require lump-sum working capital for various purposes; therefore, business loans offer financial aid up to ₹50 Lakhs so that you don’t have to struggle with your financials.
- Tailored as per Your Needs – Business loans can be customised as per your needs and financial goals. You can select the repayment tenure, loan amount, etc., to eliminate the financial burden.
- Instant Fund Disbursal – You can enjoy an instant fund disbursal facility after the verification and approval of the loan application.
- Minimal Documentation – The documentation procedure is minimal, reducing the hassle of the long loan procedure period.
What are Mudra Loans?
MUDRA stands for Micro Units Development & Refinance Agency and offers financial support to micro-firms, non-corporate organisations, start-ups, etc. It was launched by the Prime Minister in 2015. The MUDRA scheme is categorised into three stages – Shishu, Kishor, and Tarun. Banks and financial institutions evaluate the growth, scope and profits of the enterprise in order to determine the stage of the MUDRA scheme.
Some of the key features of Mudra loans are –
- Empowers Women – This government scheme aims at empowering women by offering Mudra loans at competitive interest rates.
- Offered by Banks and Financial Institutions – PNB Mudra loans, SBI e-mudra loans, etc., are some of the popular Mudra loans offered by banks and other financial institutions.
- Community Awareness – The refinance support scheme aims to deliver business literacy and risk-sharing awareness.
- Competitive Loan Amount – Under the Mudra loan, the organisations can get up to ₹10 Lakhs spending on their requirement and business model.
What Makes Mudra Loans Distinct from Business Loans?
Some of the parameters that make Mudra loans distinctive from business loans are –
- Loan Amount – The maximum loan amount that can be sanctioned under a Mudra loan is ₹10 Lakhs. Compared to that, you can get up to ₹50 Lakhs under a business loan.
- Loan Tenure – While a Mudra loan offers a maximum loan period of 36 months, for business loans, the maximum loan period can range up to 60 months; however, it depends upon the norms and conditions of the lending institution.
- Interest Rate – The interest rate is generally influenced by various factors like your profile, business model, etc. The interest rates of PNB Mudra loans, SBI e-mudra loans, etc., depend upon the norms and conditions of the lending institution.
- Eligibility Parameters – Business loans have a flexible and basic eligibility criterion. Any organisation applying for a business loan should be functional in the industry for at least two years. It should also have an annual turnover of ₹10 Lakhs or above. Whereas, for Mudra loans, the eligibility criteria are a bit stringent. Only micro or small enterprises like artisans, fruit vendors, etc., are eligible under the Mudra scheme.
- Documentation Procedure- Business loans can be availed online with a minimal documentation procedure, whereas, for a Mudra loan, there is a list of documents that one must mandatorily submit.
|Business Loans||Mudra Loans|
|Bank Statement (last nine months)||Passport-size photographs|
|PAN card||Identity Proof – Aadhar card, Passport, etc.|
|Address Proof of the business||Address Proof – Utility bills, Voter ID|
|ITR (the last two years)||Identity Proof of the business|
|Address Proof of the business / Rental agreement (in case, the office or warehouse is rented)|
|Copy of Partnership Deed (in case, of a partnership firm)|
|Memorandum of Association or Article of Association (for a company)|
|Audited balance sheets of last two years (in case, the loan amount is above ₹2 Lakhs)|
|Sales tax form and ITR|
1. What are the three types of Mudra loans?
There are three types of Mudra loans – Shishu, Kishor, and Tarun.
2. Is there any subsidy available for the reserved classes under the Mudra loans?
No, there is no subsidy available for the reserved classes under the Mudra loans.
3. Can I apply for a Mudra loan more than once?
Mudra loans are financial support offered by banks or financial institutions for the expansion and growth of small enterprises. Any enterprise or organisation cannot avail of the benefit of Mudra loans more than once.
4. What is the interest rate applicable on a Mudra loan?
The interest rate applicable on Mudra loans ranges from 8.6% – 11.5% approximately. The interest rates may vary due to the norms and conditions of the lending institution.
5. Are there any processing charges involved in the Mudra loan?
For loans below ₹50,000, there are no processing charges involved; however, for loans above ₹50,000, there is a processing fee of 0.50% along with GST and other applicable taxes.