Mudra Loan Eligibility

The banks that offer Mudra loans choose the candidates carefully and approve loans for businesses that have a lot of potential for growth and can provide employment opportunities to others in the future. In fact, the Mudra loan scheme was launched to provide proper financial aid to small scale business owners. This is one of the crucial steps taken by the government to ensure that small business owners do not have to rely on personal networks and private lenders since they often charge unreasonable interest rates and put up unfair terms and conditions.

These small business owners can easily avail the Mudra loan from a government recognized financial institution at a low interest rate. Another benefit is that borrowers do not need collateral / security or any third party guarantee to apply for a Mudra loan. This initiative will help strengthen the MSME sector and enable it to become a key contributor to the GDP growth, in addition to providing employment opportunities to thousands of people across India.

A few conditions that a small business must satisfy to meet the Mudra loan eligibility criteria are listed here:

• Activities: PMMY has an illustrative list of activities that can be covered under Mudra loans. Micro, small and medium businesses in these sectors meet the Mudra loan eligibility requirements and can apply for Mudra loans.

The maximum amount that business owners can apply for under a Mudra loan is Rs. 10 lakhs. A start-up can only apply for a loan of up to Rs. 50,000 (Shishu loan). A business that needs capital to establish itself is eligible for a loan of Rs. 50,000 to Rs. 5 lakh (Kishor loan) while an established business that need capital for expansion can apply for a Mudra loan of Rs. 5 lakh to Rs. 10 lakh (Tarun loan). Businesses that meet Mudra loan eligibility requirements cannot apply for a loan amount exceeding Rs. 10 lakh.

Must Read: Documents Required for MUDRA Loan

Mudra loans are divided into three categories to cater to different funding requirements of micro business units at different stages of development. The Mudra loan eligibility criteria for each are briefly discussed here:

• Shishu Loan: The Shishu loan is the child category of the Mudra loan and is perfectly suited for small start-ups. A micro business owner can apply for a loan of amount up to Rs. 50,000. The Shishu loan can help a business owners get a small capital to get started in the MSME sector. A potential borrower must present his or her business idea along with the Mudra application form to apply for the loan
• Kishor Loan: The Kishor loan in the Mudra loan category is best suited for small business owners who have already started a business and need capital to establish it as a larger enterprise. The business owners can apply for a loan amount starting from Rs. 50,000 up to Rs. 5 lakh under this category. The borrowers must fill the Mudra loan application form and also present the relevant documents to showcase the current position of their enterprise to meet the Mudra loan eligibility requirements
• Tarun Loan: The Tarun loan is targeted towards small businesses that have been established for some time and need capital for expansion, as well as micro units that need funds for the purpose of set up. The business owners can apply for a loan of Rs. 5 lakh to Rs. 10 lakh. The borrowers must fill the Mudra loan application form and present documents to showcase the latest position of the enterprise along with ID proofs to match the lending institution’s Mudra loan eligibility criteria

The loan amount is fixed for each category of Mudra loans, however, there can be a slight variation in the interest rates of different banks.

Check – Mudra Loan Interest Rates

Q. How do I apply for a Mudra Loan?

A. Mudra loan has a simple application procedure even though the exact procedure varies from one bank to another. Since all the banks and financial institutions cannot offer Mudra loans, you must first check if the nearest bank is eligible to offer Mudra loans. Once you find the right bank, you must inquire about their application procedure and Mudra loan eligibility criteria before you fill the Mudra loan application form. 

Q. Do I need to have an account in the same bank to get a Mudra loan?

A. No, it is not mandatory to apply for a Mudra loan from a bank where you hold an account. However, having a bank account in the same bank might improve your chances of getting a Mudra loan approval.

Q. I want to start a business, which Mudra loan should I apply for?

A. The Shishu loan is the best option for start-ups. All you need to do is present your business idea along with the application form and relevant documents to meet the Mudra loan eligibility requirements and apply for the loan.

Q. What are the documents that I need to apply for a Mudra loan?

A. You need to go to the bank of your choice that offers mudra loan to get the application form. Here are the documents that you need to provide if you apply for a mudra loan and want to meet all Mudra loan eligibility prerequisites.

• Proof of Identity of the applicant
• Proof of Residence of the applicant
• Proof of belonging to a special category such as SC, ST, OBC, Minority, etc.
• Proof of Identity, Address, Licences of the Enterprise (if any)
• Quotation of items to be purchased for business use (if any)
• 2 recent passport size photographs

Q. What is a Mudra Card?

A. Once you have been granted a mudra loan, you will receive a card known as the Mudra Card. The Mudra card, sometimes called the Mudra loan card, is similar to a credit card and has the credit limit set at 10% of the loan amount you have been granted. Some banks have also launched mudra cards that you can use to withdraw money from ATMs as well. The maximum withdrawal limit for a day is set at Rs. 25,000.