The MSME sector is a major contributor to India’s overall GDP and economy, with the actual number of enterprises surpassing 63 million in 2020, as per the latest report. While the sheer size of this sector is impressive, the country’s small-scale businesses face a serious challenge when it comes to funding and access to capital.
PMMY or Pradhan Mantri Mudra Yojana is a government-backed initiative, which looks to shorten this credit gap faced by the MSME industry. Under this scheme, Mudra loan is solely available to micro and small-sized enterprises, enabling them to operate and generate sizable revenue.
Thus, business owners must know all about such schemes to reap the optimal advantage of its various features.
Primary features of loans under PMMY
Before opting for such a loan, one must go through its various features. They are as follows –
- Although the principal amount usage is limited to business expenses, borrowers can still use it in a variety of ways. For instance, renovation of business property, purchase of plant or machinery and modernisation are just some of its utilities.
- Mudra loans are working capital credits, which help in boosting a small-scale business’s available liquidity.
- Only businesses involved with trading, manufacturing or providing services are eligible to avail such loans. Agriculture-related small industries can also benefit from this scheme.
- One of the biggest advantages of this scheme is that it offers financial assistance to new businesses, alongside the established firms.
- The tenor for Mudra loans ranges between 3 and 5 years.
- Processing fee on such credit can range between 0-0.5%, which usually depends on the kind of loan one avails. Therefore, in some cases, borrowers do not have to service such a processing charge.
Moreover, due to digitisation, entrepreneurs can opt for such a loan under PMMY online, reducing hassle effectively. Once a borrower is demystified about Mudra loans, he or she should next proceed to learn more about its various categories.
Three categories of Mudra loans
Individuals looking to avail financial assistance under such a scheme would need to apply under one of the following categories. These include –
- Shishu loan
Under this category, eligible borrowers can avail a principal of up to Rs.50000. Due to the limited credit availability, such loans are more suited for the smaller scale businesses or newer organisations, suffering from liquidity shortages.
- Kishore loan
If you require between Rs.50001 and Rs.5 lakh, applying under the Tarun scheme is advisable.
- Tarun loan
Lastly, if your need ranges between Rs.5 lakh and Rs.10 lakh, PMMY provides a Tarun scheme to suit your funding requirements.
Keep in mind that along with the maximum principal available, the documentation process also significantly differs among these three categories. Nevertheless, whenever you need urgent finance for your small business, Mudra loans can be a wise option to consider.
Even so, a Mudra loan is limited in its scope and applications due to a host of reasons. A standard business loan is often a better option or alternative for eligible enterprises.
Why consider a business loan?
Unlike a Mudra loan, business loans do not limit borrowing to small-scale businesses only. Additionally, increased principal availability, along with attractive interest rates are other benefits of this mainstream borrowing option.
Listed below are some areas where a business loan outshines credit availed under PMMY –
- Increased flexibility of tenor
A small business opting for a Mudra credit would need to repay the entire sum along with interest within 5 years. This limit in repayment tenor can force MSME firms to bear high monthly instalments.
A business loan, on the other hand, offers greater flexibility in this regard, allowing for repayment within up to 84 months (7 years). Such a facility can reduce EMI sizes of a loan considerably.
- Higher borrowing limit
While Mudra loans offer hassle-free funding of up to Rs.10 lakh, a business can require a more substantial quantum in certain cases. Online business loans from reputed financial institutions enable owners to opt for principal amounts ranging up to Rs.45 lakh.
These big-ticket credit facilities are often the need of the hour, especially when a business is renovating or re-establishing its operations.
- Simplified documentation process
NBFCs providing business loans require minimal documentation from borrowers. Thus, during an emergency, small business owners do not need to undertake a hectic procedure of collecting and arranging all of the necessary documents. In some cases, borrowers can also benefit from pre-approved offers, which streamline this lending further.
Pre-approved offers from Bajaj Finserv not only simplify applications but also accelerate the lending process. These offers are available on a range of financial products, including personal loans, credit cards, business loans and more. Check your pre-approved offer by submitting a few essential details.
Business owners, therefore, need to weigh the pros and cons of Mudra loans and its various schemes before availing such credit. In some instances, business loans may prove to be a wiser choice.