In the past decade, startups have really taken off in India. Last year alone, more than 1300 new startups emerged in India. India is the third-largest startup ecosystem in the world. This, of course, has a lot to do with the majority of our population being young, their level of education, investors putting faith in them, etc. And then there are loans. It is becoming easier for startups to acquire loans from different sources.
Recognizing the potential of Indian startups, the government in 2015 announced the Pradhan Mantri Mudra Yojana. PMMY provides loans to small businesses via an NBFC (non-banking financial company) called Mudra or Micro Units Development & Refinance Agency.
Types of Mudra loans
This is a loan of upto Rs.50,000. It is usually given to startups which are in their very initial stages for setting up their company, pay for capital costs, equipment, infrastructure, raw materials for construction, etc. In order to nurture the flourishing startup ecosystem, the government focuses more on this type of Mudra loan.
After setup comes the stage of business expansion and increase of capital. For these growth years, the Pradhan Mantri Mudra Yojana provides loans from Rs.50,000 to Rs.5 lakhs.
This is a more advanced stage loan, which can be useful for expansion of your start-up. The amount could be anything between Rs.5 lakhs and Rs.10 lakhs.
How to avail a loan for startup under PMMY
The detailed process for availing a Mudra loan for your startup can be found on the official government website and on official websites of supporting banks, NBFCs, and MFIs.
1. Category of startup
Before going ahead with any part of the process, you first need to find out the exact category your startup falls under. This depends on which category’s criteria matches with your Mudra loan requirements.
2. Source of Mudra loan
There are various ways to avail this loan, namely via banks, NBFCs, MFIs, and online applications. You need to check out interest rates and then decide which source would be the best for you.
You need a certain set of documents to have your loan sanctioned. The list will usually include
- Your Id proofs
- Your previous loan records
- Documents of credibility
- A definite business plan
- Company balance sheets (for Tarun and Kishore loans)
- Future growth path (for Tarun and Kishore loans)
How does the Pradhan Mantri Mudra Yojana provide funds?
There are two modes of funding support provided by the PMMY.
Micro Credit Scheme
This is provided through MFIs (Micro Finance Institutions) which provide loan upto Rs.1 lakh for a variety of income-generating activities of small businesses. The loans could be delivered through individuals, SHGs (Self Help Groups), or JLGs (Joint Liability Groups).
Refinancing for NBFCs and banks
Regional rural banks, small finance banks, commercial banks, and Non Banking Financial Institutions (NBFCs) which provide loans under Shishu, Tarun, and Kishore categories can avail for refinance from the Pradhan Mantri Mudra Yojana. This facility is available to them for term loans and even working capital loans to the tune of Rs.10 lakhs per unit.
The financing banks or MFIs might even consider providing additional facilities like reduction in the loan interest for encouraging women entrepreneurs. Currently, MUDRA provides a deduction of 25bps on interest rate to NBFCs and MFIs which provide loans to female entrepreneurs.
Which business activities can benefit from Mudra loan for startup?
- Purchase of vehicles for transport including two wheelers
- Community, personal, and social service activities like beauty parlours, gymnasiums, tailoring shops, boutiques, repair shops, medicine shops, etc.
- Enterprises related to food production like papad making, jam making, jelly making, sweet shops, food stalls, catering, cold chain vehicles, ice cream making, bread, biscuit, bun making, etc.
- Textile activities like powerloom, handloom, khadi, chikan work, zardozi, zari, traditional embroidery, traditional printing, dyeing, hand work, apparel design.
- Business loans for shopkeepers and traders
- Equipment finance for micro units
- Agriculture-allied activities like pisciculture, apiculture, poultry, grading, livestock rearing, aggregation, sorting, agro industries, agri-clinics, fisheries, food processing, agribusiness centres, and various auxiliary services, which provide a livelihood or generate income.
If you are women entrepreneur you can also go for speically designed mudra loan for women
An alternative- Bajaj Finserv Business Loan
A Mudra loan is a great option, but the requirements of your startup might not match its terms. This might put you in need for an easy, quick loan for startup like the Bajaj Finserv Business Loan, available on Finserv MARKETS. It provides you an opportunity to get your loan approved within 3 minutes and disbursed within 24 hours through an end-to-end online process. You needn’t even worry about a guarantee as this is a zero-collateral loan.
So if you have been putting off that business idea due to worry of funds, you know that you now have more than one lucrative choice for it.
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