India is home to close to 60 Mn small businesses; these businesses contribute ~8% to country’s GDP. Most of the small business units are unorganized in nature, have limited understanding of formal financing structures, and may not have perfect documentation or banking vintage. Because of these problems, often they end up borrowing at very high costs from informal sources. In order to solve this funding gap, government of India has launched Mudra Yojna, with a sole motive to fund millions of micro units who cannot get access to formal funding support. Given below we have addressed some frequently asked questions on Mudra scheme.
1. How much finance is available under Mudra Yojna/Mudra loan?
Financing from INR 50,000 to 10 lakhs is available under this scheme. These loans are available under three structures:
- Shishu Loans – Financing support upto INR 50,000
- Kishor Loans – Financial support from INR 50,000 to INR 500,000
- Tarun Loans – Financial support from INR 500,000 to INR 10,00,00
2. What kind of collateral is required to service these loans?
Mudra loans are collateral free. One doesn’t need to provide any security or collateral for these loans.
3. What documents are required to avail these loans?
Usual documents like address, identity proof, project details, quotation of machinery and business registration proof. Know more about loan documentation here.
4. I want to purchase machinery worth INR 10 lakhs, would I get entire amount as loan?
Typically up-to 75% of machinery cost is reimbursed. Payments are made to the equipment/machinery vendors directly.
5. I need funds for working capital requirement in my company, can I get a loan?
Sure, Mudra loans are available both as term loans and working capital. Upto 75% of total working capital gap can be funded.
6. What is the interest rates prevailing on these loans?
Interest rates on Mudra loans depend upon each bank’s referral rates (currently this is MCLR – Marginal Cost of Lending Rate). Currently available ~11-12% per annum.
7. I have recently started my tiffin services business from my home, can I get a loan under Mudra Scheme?
Yes, new companies can avail a loan under the scheme. Some of the pre requisites are:
- One must have all the industry specific licenses like food safety, fire safety, food and drug licenses as per applicability
- Entrepreneur must have relevant industry experience to run this business and execute on production, customer service and marketing aspects
- One must not be a defaulter on any previous loans
- Overall the business should be capable of generating enough cash flows to repay the loan. Learn more about how lenders assess your loan eligibility here.
8. How to go about availing a loan under Mudra scheme?
First you need to prepare all documentation and then go to any bank near your office or residence, submit documentation and fill a form.
9. I want to purchase second hand machinery, can I get this financed under Mudra?
Usually only fresh equipment is funded under Mudra Scheme.
10. I run a manufacturing company and I cannot repay the loan for at least one year. Can I get a moratorium?
Mudra loans are typically available for a 5 year tenure. However, depending upon project to project, a moratorium (a period during which you do not pay principal) can be requested and sanctioned on a case to case basis.