Mudra Loan for Small Business in India: Eligibility & How to Apply
If you've picked a business idea but aren't sure how to fund it, a Mudra loan for small business in India is usually the fastest, cheapest starting point — it needs no collateral, covers loans up to Rs.20 lakh, and can be approved in days through almost any bank or NBFC. Here's exactly who qualifies, how much you can borrow, and how to apply.
What Is the Mudra Loan Scheme?
The Pradhan Mantri Mudra Yojana (PMMY) is a Government of India scheme that gives collateral-free loans of up to Rs.20 lakh to small, non-corporate businesses — everything from a home bakery to a microgreens farm counts. It was launched to help first-time entrepreneurs get working capital without the paperwork wall that usually blocks small borrowers from traditional business loans.
Any bank, NBFC, or microfinance institution participating in PMMY can sanction a Mudra loan, and because the government guarantees part of the risk through a credit guarantee fund, lenders are far more willing to approve small, unsecured amounts than they would be for a regular business loan. In FY 2024-25 alone, PMMY disbursed over Rs.5.5 lakh crore across more than 6.7 crore loan accounts, according to Ministry of Finance data — proof this isn't a scheme that exists only on paper.
Types of Mudra Loans: Shishu, Kishor, and Tarun
Mudra loans are split into three slabs based on how established your business is, so a brand-new venture and a three-year-old one don't compete for the same loan size. Picking the right category at the application stage matters — asking for more than your business stage justifies is the most common reason applications get delayed.
| Category | Loan Amount | Best For |
|---|---|---|
| Shishu | Up to Rs.50,000 | Brand-new businesses, first-time borrowers |
| Kishor | Rs.50,000 to Rs.5 lakh | Businesses already running for 1-2 years |
| Tarun | Rs.5 lakh to Rs.20 lakh | Established small businesses looking to expand |
Most side-hustlers starting something like a candle-making unit or a small hydroponics setup begin under Shishu, then move to Kishor once they have a few months of sales and repayment history to show.
Mudra Loan Eligibility Criteria
You're eligible for a Mudra loan if you run — or plan to start — a small manufacturing, trading, or services business in India, are at least 18 years old, and don't have an existing loan default with any bank. There's no minimum turnover requirement, which is exactly why it works for early-stage entrepreneurs who don't yet have financial statements.
Broadly, eligibility covers:
- Individuals, proprietorships, partnership firms, and small private companies
- Non-farm income-generating activities in manufacturing, processing, trading, or services (agri-allied activities like food processing, mushroom or herb cultivation units, and beekeeping are included)
- Both new businesses and existing ones looking to expand or add working capital
- No CIBIL score minimum is officially mandated for Shishu loans, though a reasonable credit history helps for Kishor and Tarun
Pure agricultural land-based farming (like crop cultivation) isn't covered under Mudra — that falls under separate Kisan Credit Card schemes — but value-added and processing-based farm businesses generally qualify.
Documents Required for a Mudra Loan Application
Most lenders ask for the same core set of documents regardless of which bank you apply through: proof of identity, proof of address, a passport-size photo, and a brief business plan or quotation for what the loan will be used for. Keeping these ready before you start the application saves at least one branch visit.
- Aadhaar card and PAN card
- Address proof (utility bill, voter ID, or Aadhaar)
- Passport-size photographs
- Business proof — GST certificate, Udyam/MSME registration, or a simple quotation/proforma invoice for machinery or raw materials if the business hasn't started yet
- Bank statements for the last 6 months (for Kishor and Tarun loans)
- A one-page business plan stating what the loan will fund and your expected monthly income
How to Apply for a Mudra Loan: Online and Offline
You can apply for a Mudra loan either through the official PMMY portal or by walking into any participating bank branch — both routes lead to the same underwriting process, so pick whichever is more convenient. Public sector banks, most private banks, regional rural banks, and registered NBFCs/MFIs all disburse Mudra loans.
- Choose your lender: Compare 2-3 banks you already have an account with — approval is usually faster where you have an existing relationship.
- Fill the Mudra loan application form: Download it from the official MUDRA website or collect it at the branch.
- Submit documents: Attach your KYC, business proof, and one-page business plan.
- Verification and sanction: The bank verifies your documents and business viability — this typically takes 7 to 15 working days for Shishu loans.
- Disbursal: Once sanctioned, funds are credited to your account, and for Shishu loans a Mudra Card (like a business credit card) is often issued too.
You can also apply digitally through net banking portals or the Udyamimitra platform, which lets you compare offers from multiple lenders before committing to one.
Mudra Loan Interest Rate and Repayment Tenure
Mudra loan interest rates aren't fixed by the government — they range roughly between 8% and 12% per annum depending on the lender, your credit profile, and the loan category, so it's worth comparing at least two banks before signing. Public sector banks tend to sit at the lower end of that range for Shishu loans.
Repayment tenure usually runs 3 to 5 years, and most banks offer a short moratorium period (often 6 months) before EMIs begin, which helps if your business needs a few months to start generating steady income. There's no prepayment penalty on most Mudra loans, so paying off early once your business is profitable is a smart way to cut total interest.
Mudra Loan vs PMEGP vs Stand-Up India
Mudra is the right fit when you want fast, collateral-free funding with minimal paperwork and don't need a subsidy component. PMEGP and Stand-Up India serve slightly different needs, so it's worth knowing the difference before you apply to the wrong scheme and lose weeks waiting.
- Mudra Loan: Up to Rs.20 lakh, no collateral, no subsidy, fastest approval, best for most small businesses and side hustles.
- PMEGP: Up to Rs.50 lakh (manufacturing) or Rs.20 lakh (services), includes a 15-35% government subsidy, but requires a more detailed project report and longer processing — check current guidelines on the official PMEGP portal.
- Stand-Up India: Rs.10 lakh to Rs.1 crore, specifically for women entrepreneurs and SC/ST applicants setting up greenfield enterprises.
Common Mistakes to Avoid When Applying
Most Mudra loan rejections come down to a handful of avoidable errors rather than the business idea itself. Fixing these before you apply meaningfully improves your approval odds.
- Applying without a clear business plan: Even a one-page plan showing costs, revenue expectations, and how the loan will be used makes a real difference to underwriters.
- Requesting a loan category that doesn't match your business stage: Asking for Tarun-level funding with no trading history usually gets scaled down or rejected.
- Skipping Udyam/MSME registration: It's free, takes 10 minutes online, and many lenders now expect to see it.
- Not comparing lenders: Interest rates and processing speed vary meaningfully between banks — one quote isn't enough.
- Ignoring existing loan defaults: Even a small unpaid personal loan can block approval, so clear or restructure old dues first.
Which Businesses Can You Fund With a Mudra Loan?
Almost any small manufacturing, processing, or service business qualifies, which is exactly why Mudra pairs so well with low-investment, high-demand ideas rather than capital-heavy ones. If you've been comparing options, our guide to low-investment business ideas to start from home in India is a good next stop, and several of the specific businesses we've covered — from a hydroponic farming setup to a candle-making unit — fall well within Shishu and Kishor loan limits.
Frequently Asked Questions
Who is eligible for a Mudra loan in India?
Anyone 18 or older running or starting a small non-farm business — manufacturing, trading, or services — is eligible, including proprietorships, partnerships, and small companies. There's no minimum turnover requirement, and existing loan defaulters are the main group excluded from approval.
What is the maximum amount you can get under a Mudra loan?
The maximum Mudra loan amount is Rs.20 lakh under the Tarun category, for established small businesses. New businesses typically start with Shishu loans up to Rs.50,000, moving to Kishor (up to Rs.5 lakh) as they build a repayment track record.
Is collateral required for a Mudra loan?
No, Mudra loans are entirely collateral-free across all three categories — Shishu, Kishor, and Tarun. This is the scheme's biggest advantage over traditional business loans, which typically require security or a guarantor for amounts above a few lakh rupees.
How long does Mudra loan approval take?
Shishu loans (up to Rs.50,000) are typically approved within 7 to 15 working days if documents are in order. Kishor and Tarun loans, which involve more scrutiny of business financials, can take a few weeks longer depending on the lender.
Can I get a Mudra loan for a new business with no revenue yet?
Yes — Mudra loans, especially under the Shishu category, are specifically designed for first-time entrepreneurs with no revenue history. You'll need a clear business plan and cost estimate instead of financial statements to support your application.
Getting the funding sorted is only half the job — you still need a business that's actually planned to make money. Our step-by-step business ebooks lay out realistic startup costs, timelines, and profit potential for specific low-investment businesses in India, so you can walk into the bank with a plan a loan officer will actually take seriously.