An October 2020 report indicated that India’s MSME sector is responsible for contributing around 30% to the GDP. Similarly, around 48% of the country’s total exports originate from this sector as well. Thus, the MSME sector’s importance to the country’s economy is immense. Foreseeing this, the government had introduced the Pradhan Mantri Mudra Yojana in 2015.
Under this scheme, specialized working capital loans, known as Mudra loans, are extended to small and medium-scale businesses. The minimal documentation involved, alongside no processing charges, are some of the major advantages of acquiring such credit.
Business owners planning to avail advances under this centralized scheme should learn about the complete process to minimize hassle and delays.
How to apply for a Mudra loan?
To acquire a Mudra loan, individuals should follow the exact procedure mentioned below –
- Step 1: Approach a financial institution that offers loans under the Pradhan Mantri Mudra Yojana scheme. Almost all reputed financial institutions entertain such loan requests in India.
- Step 2: Keep all necessary documents ready. Failure to substantiate your application with the necessary paperwork can lead to loan request rejections.
- Step 3: Fill up an online or offline application form. You can either collect one such form from the NBFC or simply visit the lending organisation’s official online portal.
- Step 4: Enter or fill up the amount of loan you desire. Keep in mind though that the entered amount cannot be more than Rs.10 lakh in case of Mudra loans.
- Step 5: Submit the completed form along with all necessary documents. Also, one may need to pay a nominal processing fee, based on the category of loan he/she is applying for.
Nevertheless, before proceeding with a loan application process, one must also assess such business loan eligibility criteria to ensure a streamlined procedure.
Mudra loan eligibility
Applicants must fulfil the following norms to avail a Mudra loan –
- The borrower must be aged between 18 and 65 years.
- Loan requirement should be limited to Rs.10 lakh, as higher principal sums are not available under PMMY.
- Non-farm related income-generating manufacturing, trading and service sector businesses are eligible for such credits.
Next, a prospective borrower should figure out the exact documentation process for a Mudra loan.
What documents does a borrower need to submit to acquire Mudra loan?
The following documents are mandatory along with a Mudra loan application to process and sanction it –
- Passport-sized photographs.
- Application form complete with all relevant information.
- Business plan composed by the borrower.
- Address proof.
- Identity proof.
- Applicants’ KYC documents.
- Business tenor and address proof.
- Income proof, which should include ITR, licenses, and other financial items.
- Proof of belonging to minority categories, such as OBC, ST, ST or others.
- Business registrations, licenses and more.
Disbursement process for PMMY loans
Beneficiaries of such credit should also understand the disbursement procedure for such a business loan. Instead of the principal amount being credited in one’s savings account, this Mudra loan quantum is deposited in a specialised account, particularly for this financial product.
Borrowers also acquire access to Mudra debit cards, which enable them to withdraw the desired amount from any ATM. The government follows this exact procedure to keep track of a borrower’s credit history. The importance of your business credit score is immense and will allow you to avail finance in the future.
Still, for all of its benefits, Mudra loans restrict the maximum principal amount considerably. Many enterprises need loans worth over Rs.10 lakh to fulfil their specific requirements. In such a case, a standard business loan can better suit this need.
Features of a business loan
While exact features can differ from one lending institution to the next, following are some of the aspects of a business loan –
- Significant loan principal amount, up to Rs.45 lakh, in some instances.
- Affordable interest rates.
- Tenor ranging up to 7 years.
The eligibility criteria for such an advance can differ significantly from Mudra loans. If you and your company qualify for the credit, business loans can be the perfect funding option to raise capital for your enterprise.
Nevertheless, keep in mind that most lenders ask for a business vintage of three years or more to approve applications for such loans. Thus, new businesses may face issues when opting for this loan. On the other hand, existing customers of a particular NBFC can take advantage of attractive discounts and offers.
For instance, Bajaj Finserv provides pre-approved offers to simplify and speed up the loan availing procedure. These offers are available various other financial products, including personal loans, business loans, credit cards and others. You can check your pre-approved offer by submitting just some essential details, such as full name and phone number.
Whether you plan to avail a Mudra loan or a simple business credit, understanding the application process is crucial. It can cut down the time required to process an application, while also minimising the risk of loan rejection.