Each organization aims to grow or extend its business on a massive scale to stand out in the market in today’s competitive world. Mudra loans and Business loans can help to raise a sizable sum of money, which may be done simply by making available various benefits. There are several financial institutions you can approach for a loan, but before you do, you must know what kind of loan will best meet your needs.
Because both lending options are for business owners, individuals frequently confuse Mudra Loan with Business Loan.
To assist you to understand both types of loans and help you make the right decision, we have provided a straightforward explanation of them here.
Mudra loan
The Indian government’s flagship program, the Pradhan Mantri Mudra Yojana, was introduced in 2015 to provide loan facilities for micro and small businesses to facilitate income-generating activities. The primary objective of the mudra loan policy is to increase the credit opportunities available to businesses and non-farming sectors. Micro Units Development and Refinance Agency are known as Mudra. Small firms and enterprises are eligible to apply for financing up to a maximum of Rs. 10 lacs under the mudra scheme.
Different features of mudra loan:
- Increasing production capacity
- Infrastructure expansion and modernization
- preserving acceptable working capital levels
- industrial equipment purchase
- office and commercial building machinery renovation
Different types of loans can be availed under the mudra scheme –
- Kishore loan
This loan-based version of the mudra scheme meets the financing needs of business owners who seek to grow their current operations or launch new ones. This loan option is ideal for business owners that want a larger loan amount to increase their market presence.
- Tarun loan
The mudra scheme’s loan option satisfies the financing needs of company owners looking to launch a new venture or grow an existing one. For business owners seeking a larger loan amount to increase their market presence, this loan variation is the ideal option.
Business loan
Institutional credit sources like banks and NBFCs typically provide business loans. The basic goal of a company loan is to arm and enable others to realize the financial requirements for capital expenditure and business expansion. The responsibility to return the loan and any accrued interest following the terms of the contract is one of the most typical features of offering a business loan.
Business loans are obtained through conventional banks. Business owners are exposed to a variety of loan facilities as a result of the expansion of private-sector banking services. It is advised that business owners learn about the different requirements for a business loan and submit an application to the most reputable financial institution.
Different features of business loan:
- Increased loan disbursement amounts
- smoother and quicker dispersion
- No-collateral loans
- Streamlined documentation procedure
- rapid approvals and ease of the online process
Different types of loans can be availed under the business loan –
- Short term loans
Except for the payment duration, short-term loans are comparable to long-term loans. In contrast to a long-term loan, a short-term loan requires prompt repayment of the obligation. A short-term loan typically has a repayment period of three to eighteen months.
- Business line of credit
This is another term for a revolving line of credit, which is provided by both traditional banks and internet lenders. The distinctive feature of this form of business loan is that the borrower is given a predetermined limit from which withdrawals may be made following the demands of the enterprise. The benefit of this loan type is that the borrower only needs to pay interest on the amount withdrawn, not the whole line of credit.
- Equipment Financing
The appropriate equipment purchases might be the difference between a successful operation and bankruptcy. Equipment financing is preferred by traditional banks and online financial lenders since it poses no risk to them. The equipment that was acquired with the help of the company loan may be used as collateral.
| Mudra Loan | Business Loan |
| Micro Units Development & Refinance Agency Ltd. is referred to as MUDRA. It was founded to provide loans to help small business owners expand their enterprises. | Micro Units Development & Refinance Agency Ltd. is known by the abbreviation MUDRA. It was founded to offer loans to small business owners so they may expand their enterprises. |
| The Indian government created this program. | Different banking institutions and NBFCs offer business loans. |
| Up to Rs. 10 Lakhs can be lent. | The limit varies depending on the lender. |
| The initial interest rate is 8%. | Each lender sets their own rate of interest for business loans. |
| You may apply for this loan online or in person at any branch of a financial institution. | You may submit an application for this loan online or in person at any branch of a financial institution. |
| No collateral is required | Collateral is required |
Comparison between Mudra Loan and Business Loan Eligibility Requirements:
Both loans have different qualifying requirements. Details on the same are provided below.
Mudra Loan
- The candidate must be at least 18 years old and no older than 65.
- Only small/micro-businesses, including fruit and vegetable sellers, craftsmen, store owners, tailors, beauty salons, boutiques, courier services, etc., are eligible to qualify for a mudra loan.
Business Loan
- The candidate must be at least 21 years old and at most 65 years old.
- This loan is available to any type of company.
- corporate vintage (minimum two years).
- ITR from the previous year must be at least Rs. 1.5 lakhs.
- The business must have an annual revenue of at least Rs. 10 lakhs.
- The home and the office should be separate spaces.
- Either the home or the company location should belong to the business owner.
- The requirements for a business loan’s eligibility might differ from lender to lender.
Comparison of the paperwork needed for a business loan and a Mudra loan:
The list of necessary paperwork for MUDRA and business loans is provided below.
Mudra Loan
- Identity proof
- Address proof
- Income proof
- Caste certificate
- Business address proof
- Rental agreement
- Partnership contract
- Memorandum and articles of association
- Title agreement
- Lease deed
- Inventory purchase certificate
- Passport size photographs
- Small-scale industry registration (SSI) certificate
- Pollution Board clearance certificate
Business Loan
- Identity proof
- Address proof
- PAN card
- Age proof
- Business residence proof
- Last six months’ bank statement
- ITS for the last two years
- CA audited the last 2 years’ balance sheets
- Passport size photographs
FAQs
What is the interest rate for business loans?
18 to 36 percent annually, 1.33 to 2 percent in the p.m. 1 to 1.5 percent in the p.m..
Does the MUDRA loan have a subsidy?
Three different Mudra loan types—Shishu, Kishor, and Tarun—offer subsidies on loans.
For a MUDRA loan, is Udyam registration required?
In most circumstances, you just need to have a business plan and project report in addition to an MSME registration or Udyam registration.
Is GST a requirement for MUDRA loans?
The bank statements, GST forms, and ITRs are optional but still needed.
What bank offers the finest business loans?
SBI, HDFC Bank, ICICI Bank, Citibank, IDFC, Kotak Bank, and other banks are among the best for business loans.
Conclusion
Both loan options have different benefits, requirements, and paperwork. You now understand how a MUDRA loan and a business loan differ thanks to the comparison shown above. As a consequence, it will help you choose wisely and choose the finest option for your requirements.