Mudra Loan Limit Now Raised to Rs 20 Lakh: Boost for Small Business Owners

October 25, 2024 By: Naresh Saini0 comments

The Pradhan Mantri Mudra Yojana (PMMY) just took a significant step to encourage entrepreneurship in India. The loan limit under this scheme, originally capped at Rs 10 lakh, has now been doubled to Rs 20 lakh. This increase aims to support small business owners, startup founders, and entrepreneurs in expanding their businesses. With the updated limits, a wider range of small and medium-sized enterprises (SMEs) will be eligible for funding, helping them grow in an economy that increasingly values innovation and entrepreneurship.

What Is the Mudra Yojana

Launched in 2015, the Mudra Yojana is a flagship scheme designed to offer financial assistance to micro, small, and medium enterprises (MSMEs) across India. It targets emerging entrepreneurs who lack access to formal financial institutions and are often forced to rely on high-interest, informal borrowing methods. To create a more inclusive economy, the government introduced Mudra loans under three categories:

1. Shishu Loan: Loans up to Rs 50,000 to help with the initial setup of micro-businesses.
2. Kishore Loan: Loans from Rs 50,000 to Rs 5 lakh to support business growth and development.
3. Tarun Loan: Loans between Rs 5 lakh and Rs 10 lakh to assist well-established small businesses looking to expand further.

The recent enhancement in loan limits pertains to the Tarun Loan category, with loans now available up to Rs 20 lakh.

Introducing “Tarun Plus” Category

The new Tarun Plus category includes the expanded limit, allowing eligible borrowers to access funding from Rs 10 lakh up to Rs 20 lakh. Small business owners who have previously taken loans under the Tarun category and repaid them successfully will be eligible to apply for Tarun Plus. Additionally, the loan amount will be guaranteed under the Credit Guarantee Fund for Micro Units (CGFMU), which provides banks the confidence to extend loans without collateral.

What Type of Business Qualifies for Mudra Loan?

Mudra loans are accessible to various business types, especially those in need of capital for scaling and expansion. Here are some common sectors that qualify:

• Self-owned businesses and partnerships
• Micro and small-scale manufacturing units
• Food-based businesses such as food trucks, kiosks, and catering services
• Service-oriented businesses like repair shops, beauty salons, and small retail stores
• Transport-related businesses, including truck and taxi owners
• Agricultural vendors and vegetable or fruit sellers

How to Apply for a Mudra Loan

Applying for a Mudra Loan under the newly expanded limit involves a few simple steps. You can visit a government or bank branch to apply directly, or start the process online through the Mudra Yojana’s official website.

Here’s how to get started:

1. Visit the Official Website: Go to Mudra Yojana’s website and download the application form. Separate forms are available for Shishu and Kishore/Tarun loans.
2. Fill Out the Form: Provide your full name, address, Aadhaar and PAN numbers, mobile number, and details about the type of business you intend to start or expand.
3. Attach Documents: Required documents include proof of identity (such as Aadhaar or PAN), residence proof, passport-size photos, and business details like ownership documents or business certificates. Those applying for the Tarun Plus category must also attach proof of successful repayment of a previous Tarun loan.
4. Visit a Bank: Submit the completed form and documents at any public or private sector bank. The branch manager will assess your eligibility, and if approved, you’ll receive the loan amount in your account after the due verification process.

Benefits of the Increased Loan Limit

The decision to raise the Mudra loan limit is part of the government’s commitment to build a strong entrepreneurial ecosystem. By doubling the Tarun loan ceiling, small businesses in growth mode will be able to meet larger capital needs, helping them finance new equipment, expand their product lines, and enter new markets. This change aligns with the government’s vision of supporting self-reliant India and increasing employment opportunities.

Important Points to Consider

1. Interest Rates: Different banks may offer Mudra loans at varying interest rates, typically around 12%. Rates may also vary based on the applicant’s business risk profile and financial health.
2. Credit Guarantee: Loans up to Rs 20 lakh will be covered under the Credit Guarantee Fund for Micro Units, reducing banks’ risk in lending.
3. Exit Load: Borrowers are required to pay 1% as exit load if they repay more than 12% of the borrowed amount within the first 90 days. No exit load applies after 90 days.
4. Eligibility: Indian citizens with a valid business plan who fall under the MSME category can apply for Mudra loans. The scheme is open to first-time entrepreneurs as well as established small businesses.

Types of Loans and Assistance Provided

The Mudra Yojana has developed into a popular financing option, thanks to its flexibility in catering to different business stages. Here’s a quick recap of the loan types:

• Shishu Loans: For small businesses needing initial capital. Offers up to Rs 50,000.
• Kishore Loans: For growing businesses in need of working capital or equipment. Provides loans between Rs 50,000 and Rs 5 lakh.
• Tarun Loans: Designed for established businesses looking to expand further. Now provides up to Rs 20 lakh through the new Tarun Plus option.

How Does Mudra Yojana Support Business Growth?

Mudra Yojana provides access to credit for businesses that don’t have traditional collateral options, like property or large assets, which are usually required for loans. With its straightforward documentation process and guarantee coverage, this scheme helps more small businesses secure financing to meet their expansion needs.

Through the recent update in loan limits, the government reaffirms its commitment to empowering India’s entrepreneurial spirit, ensuring small business owners have the resources needed to grow sustainably.