Small scale businesses in India were estimated to maintain an annual growth rate of 10% in 2019. With around 43 million Small and Medium Enterprises (SMEs) contributing to over a quarter of the GDP, the Government of India has introduced several financing schemes to help these grow.
Small scale businesses can now avail a government-sanctioned MUDRA scheme to set up their enterprises or to expand them. This loan has extended financing to the majority of small businesses, which form the backbone of the Indian economy.
It actively encourages the entry of new small businesses in the manufacturing and service landscape, thus increasing healthy competition among enterprises.
What is MUDRA loan?
Micro Units Development and Refinance Agency or MUDRA is a scheme under Pradhan Mantri Mudra Yojana (PMMY) which assists Micro, Small, & Medium Enterprises (MSMEs) financially.
MUDRA enables financial institutions to issue business loans to new and developing entities. Small businesses can implement skill development programmes, technological upgradation, and vocational training for staff with the fund.
Businesses engaged in the manufacturing, infrastructure, and service sectors get the maximum benefits from MUDRA refinancing scheme.
Why do small scale businesses need such loans?
MUDRA loan provides a credit guarantee for SME business loans. Enterprises always aim to manufacture products that can compete in the domestic and the international market. Doing so requires considerable funds by means of collateral-free loans.
Entrepreneurs can get small business finance to fund their working capital, increase manufacturing units, and drive sales with MUDRA financing.
Thus, MUDRA loan paves the way for the steady growth of small scale enterprises by providing loan amounts as per the stage of growth of the business operations.
Mudra loan classification
MUDRA loan can be classified into the following loan stages:
Under Shishu loan, individuals looking to set up their business can acquire funds up to Rs. 50,000. They can leverage this fund to purchase machinery and equipment for the new business.
Enterprises seeking to expand their existing business operations can receive up to Rs.5 lakh under Kishore loan. They have to provide IT and sales return documents, along with the balance sheets for the previous 2 years.
Tarun loan extends funds up to Rs.10 lakh to small businesses to maintain working capital, purchasing advanced machinery and equipment. A processing fee of 0.5% is levied on the principal amount under Tarun loan.
Mudra loan application
Individuals need the following documents to apply for MUDRA loan:
- Valid KYC documents – Aadhaar Card, Voter ID, and PAN Card.
- Address proof – the Electricity bill, gas bill.
- Business proof – Business registration certificate.
Business owners can apply for MUDRA loan in the following process:
- Step 1: Keep all necessary documents ready before applying for the said credit. ID, business and address proof are some of the paperwork that you will need.
- Step 2: Approach any lender that has an association with the MUDRA scheme.
- Step 3: Fill up the form for the said advance.
- Step 4: Submit the filled up form and the necessary documents.
- Step 5: Wait for loan disbursal
To prepare your small business for growth phase in a competitive market scenario, you may need a substantial amount of funds.
To address the issue of financing limit under MUDRA loans, reputed NBFCs offer substantial business loans for small scale companies. These unsecured SME loans ensure that you don’t have to collateralise your enterprise assets.
Bajaj Finserv is an NBFC that offers such loans. The company also provides pre-approved offers to simplify the loan availing process.
Individuals can use these funds to face technological, logistical, and inventory challenges that new enterprises encounter. With these easily accessible loans, business owners can meet their growing capital needs to carry out the smooth and efficient operation.
MSME loans thus benefit small scale businesses by providing financial assistance to satisfy corporate requirements. Individuals who want to establish self-employment opportunities and grow can opt for an MSME loan.