How is Mudra Loan Different from a Business Loan?

How is Mudra Loan Different from a Business Loan?

How is Mudra Loan Different from a Business Loan?

India, with over 1 billion residents, ranks among the fastest growing economies globally today. Much of it is being driven by millions of small and medium enterprises and ventures that are emerging lately. Such a growing economy also requires an equally strong financial structure to support it. Not to mention the value added by the Central Government through different schemes.

A Mudra loan is one such financial aid that the Government of India has launched to assist the growing needs of entrepreneurs. Another type of financing that an entrepreneur can opt for to enhance the business output includes business loans.

Both options are feasible under different circumstances. However, they are different due to their origin, purpose of distribution, usage, and such other factors. Let’s understand the two clearly for better business utilization.

Mudra loan

Mudra loan – Its definition and use

MUDRA, which stands for Micro-Units Development and Refinance Agency, runs under the Pradhan Mantri Mudra Yojana. The initiative to empower existing entrepreneurs for business growth covers a list of classifications under its purview.

More than 40 million SMEs providing a living to over 150 million citizens of the country are going to be the most notable beneficiaries of this initiative. With this scheme, the government is offering unsecured loans that are hassle-free to avail.

Even aspiring entrepreneurs who are aiming to get into a venture or begin with a start-up can apply for Mudra loan. Here, the loan amounts vary according to three different categories one belongs to, i.e. –

  • Tarun
  • Kishore
  • Shishu

Also, the rate of interest for these categories is subjective and decided by the MUDRA bank on a case-to-case basis.

Business loan and its scope

As against Mudra loan which is a government initiative, business loans are offered by most lending institutions of the country. They come under the category of financial assistance to small and medium enterprises.

Entrepreneurs can avail these loans as –

  • Secured business loans
  • Unsecured business loans

While many lending institutions facilitate these loans, some of the NBFCs stand out with their offers.

Primary differences between the PMMY loan and business loan

Both these financing options have their own sets of advantages over the other.

  • Purpose of use

As for a Mudra loan, it can be availed as funding like –

  • loan for working capital requirements
  • loan for plant and machinery purchase
  • loans for renovating workspace or the office area
  • overdrafts for rural businesses
  • vehicle loans for commercial use
  • two wheeler or car loans

When it comes to business loans, they are more specific to the business and can be availed to –

  • increase the cash flow of business
  • lease of bigger premises
  • upgrade technology
  • lease, repair or purchase equipment and machinery
  • hire seasonal employees
  • expand to new areas of operation
  • scale up for bigger projects along with many others
  • give to women to shape different business ideas
  • Who can avail?

For business loans, people who –

  • are between 25 and 55 years
  • carry at least three years of business vintage
  • have the IT return filed for the last year, can apply

There are certain other criteria for self-employed, professionals and non-professionals to qualify for this loan. You can also increase your odds of getting small business loans with few expert tips.

As for Mudra loan eligibility criteria, your venture needs to be from 13 specified small business segments that are non-corporate as prescribed by the government.

  • Loan to value offered

While the loan to value for Mudra loan varies between Rs. 50,000 and Rs. 10 Lakh, for business loans, this value depends upon the nature of the credit, i.e. secured or unsecured.

Non-banking financial institutions like Bajaj Finserv are better known for their collateral-free Business Loan, high loan to value of up to Rs. 30 Lakh.

Check your business requirements and go forward with the application. Make sure to match your business loan or Mudra loan eligibility, depending on the loan you are applying for. However, it is always easier to avail business loans from leading institutions to organize your business finances.

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