How Startups Can Avail The Government’s Mudra Loans In India

The Indian government is one of the most progressive in the world when it comes to framing policy, granting loans and funding schemes for startups in the country. First-time entrepreneurs usually need funding for their ideas in order to develop their business or scale up the enterprise. In order to help them in this battle of fundraising, the government of India stepped in with the scheme Pradhan Mantri Mudra Yojana in April 2015, which provides finance and loans to small businesses through Micro Units Development and Refinance Agency or Mudra, a non-banking financial company (NBFC).

Mudra operates through refinancing banks, NBFCs or microfinance institutions (MFI) that lend to entrepreneurs with loan requirements up to INR 10 Lakh, based on the specific Mudra loan eligibility criteria. To avail Mudra loans, startups and entrepreneurs need to apply to banks, NBFCs or MFIs, pick the category suited for their requirement, comply with the terms and conditions and avail the financed amount.

Types Of Mudra Loan For Startups

The offerings of Mudra loan for startups in the form of term loans and working capital loans are classified into three categories:

1. Shishu: This loan is provided to startups in their initial years and can be furnished up to an amount of INR 50K. This is usually used to meet capital costs on infrastructure, set up, equipment or bulk purchases of raw materials to start the business.
2. Kishore: This category of Mudra loans in the bracket of INR 50K to INR 5 Lakh is aimed at increasing capital or expansion of business by the entrepreneur of an enterprise in its growth years.
3. Tarun: Fund requirements over INR 5 lakh, but under INR 10 lakh fall under the final category.

Aiming to promote entrepreneurship among the youth and nurture the expansion of the startup ecosystem across the country, the government focusses more on Shishu-category business units.

Based on the applications from startup entrepreneurs that match specific criteria of Mudra loan schemes and comply with the regulations stated, banks and NBFCs provide funds to them and apply to Mudra for refinancing. MFIs, on the other hand, provide micro-credit schemes up to INR 1 Lakh to support businesses. To encourage women entrepreneurs, the loan scheme has additional benefits and special interest rates for startups that are run by women founders.

How Startups Can Avail The Loan?

To get Mudra loan, a startup venture has to figure out which category it falls in. Categorised according to scales and fund requirement of micro-enterprises, this government loan is designed to support the startup ecosystem and nurture its growth to success.

In order to make a choice from various schemes of Mudra loans, the entrepreneur must understand their own position and requirements first and then match with the criteria mentioned for each of the loan categories.

Once a startup picks the category, the next task is to decide from where the Mudra loan can be availed, based on the varied interest rates offered. Once that is done as well, the entrepreneur can apply for Mudra loan from banks, NBFCs or MFIs or can apply online for Mudra loan.

To avail Mudra loans, entrepreneurs need to present certain documents to get their loan sanctioned. These document requirements vary for different schemes of Mudra loans. But in general, identity proofs of the entrepreneur, previous loan records, and documents of credibility are mandatory along with a definite business plan for every type of Mudra loan application.

In case of Kishore and Tarun schemes, the company balance sheets and a future growth path for the business are also essential to get the loan approved.

Before applying for this financial aid, one needs to understand the Mudra loan scheme well. The loan details, rate of interest, categories, along with the respective criteria for each category are available on the official government channels, and on the websites of supporting banks, NBFCs or MFIs.

Easier To Source Than Bank Loans

For entrepreneurs, sourcing funds for their business is now easier with Mudra loans for startups. With an online application facility of Mudra loans, getting the information and availing the loan has also been simplified to a large extent. This has helped startups get such government loans in a much speedier manner.

Mudra loan schemes for income and employment generation can be availed for various needs. The money can be utilised as business loans for startup needs such as working capital, transport vehicles, equipment, input in food products sector and agri-allied non-farming activities such as aquaculture, apiaries, poultry, etc. required by startups, small businesses providing community services and commercial vehicle businesses. Use of the Mudra loan funds has been further eased for entrepreneurs by issuing debit cards, which allow withdrawals from time to time as well as facilitate online transactions.

Since the loan scheme aims to foster wholesome growth of entrepreneurship across the country, it has collaborated with government projects Make in India campaign, National Rural Livelihood Mission and National Urban Livelihood Mission. As per government data, since the inception of Mudra Yojana, INR 15.56 crore loans have been sanctioned and disbursed up to 2019 and the total amount of fund provided is INR 723K Cr.

Further, nurturing the prospects of first-time entrepreneurs and ventures, the government of India is looking forward to providing non-monetary guidance by addressing gaps in skill development, knowledge and information base, business literacy, financial understanding and growth orientations in the coming years. For now, Mudra loan for startups is acting as a starting point in this direction.

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