A loan is a necessity for any business. It helps it to tide over sudden financial challenges, helps in the expansion of the organisation and is also used as the working capital. There are numerous schemes, both public and private, aimed at attracting businesses.
With the increasing opening up of the economy and globalisation of the country, it became imperative for the government to bring about greater reforms that will facilitate growth. In appeared, on the financial landscape, MUDRA. An innovative scheme aimed to fund the micro-manufacturing sector of the country. However, as a business owner, there might be confusion as to which one to go for.
Which One is Best for You in Business Loan vs Mudra Loan?
What is a MUDRA loan?
MUDRA stands for Micro Units Development & Refinance Agency Ltd. It is a government scheme specially designed to finance small business across the country. The MUDRA scheme was announced by the prime minister on April 8th, 2015. One of the main features of this loan is that the borrower can avail up to INR 10 lakhs.
What is a Business loan?
A business loan or an MSME loan is a credit facility provided by a banking institution or an NBFC. These loans can be availed by anyone and there is no class distinction. Financial criteria arethe same for everyone and the interest rates are as per the scheme.
Let us now look at the difference between a business loan and a MUDRA loan:
The Interest Rate
This is the most important thing to look for while availing of a loan. A MUDRA loan interest rate is dependent on the bank from where the loan has been availed. A typical MUDRA loan interest rate will start from 8%.
A business loan or an MSME loan from a bank or an NBFC is highly competitive by nature. Every financial organisation vie to attract the attention of the consumer through schemes that advertise themselves to be better than the rest. NBFCs usually offer businessloans at the lowest rates. This makes them so much more attractive to business owners.
Both MUDRA and business loans from banks can be availed through online and offline channels. The processing can be completed through the internet as well as by visiting the branch.
MUDRA has stringent requirements to be met if one has to qualify for a loan. It is meant for small business, vegetable vendors, shopkeepers and others of similar ilk.
A businessloan from a financial institution has a relatively relaxed schedule compared to MUDRA. However, the due diligence followed by the banks and NBFCs maintains a level of strictness to not end up losing the money.
The MUDRA loan was designed to assist small businesses. Most small business holders do have the kind of collaterals that are asked by the banking institutions. Hence, the MUDRA scheme takes away the collateral criteria and makes it possible for the smallest businesses to qualify for a loan.
NBFCs to offer collateral-free loans but such is not the case with banking institutions. Banking institutions will look for collaterals to be had as a guarantee against the loan.
The amount of documents that a borrower has to provide to avail of a MUDRA loan far outstrips the number of documents required for a business loan by a borrower to produce.
Lastly, MUDRA loan was founded to help small businesses to flourish and reach the level of larger businesses. While business loans are designed mainly for the already established, MUDRA loan was for the poor and the marginalised. There is a thin line dividing them and hence both have their merits and cons.
Frequently Asked Questions
- How to apply for a Mudra loan?
MSMEs can be applied from scheduled banks or the NBFCs like or an applicant can also apply for the same online.
- What is the Mudra card?
A Mudra card is a debit card issued against a mudra loan account that an enterprise can use for multiple withdrawals. This debit card is also known as Mudra card.
- Who can apply for a Mudra loan?
Any Small and medium businesses can apply for a mudra loan like manufacturers, service providers, or even traders, etc.?