How to Get a MUDRA Loan for Your Small Business: A Step-by-Step Guide

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Introduction: Fuel for Your Business Dream

 

Hello, and welcome to Fiknow!

Every big business in India started small. Whether it is a small kirana shop, a beauty parlour, a tea stall, or a small factory making paper cups, every business needs one thing to grow: Money.

But for a small business owner in India, getting a loan from a bank has always been very difficult.

  • You walk into a bank, and they ask for “Collateral” (security like your house or gold).

  • They ask for 3 years of Income Tax Returns (ITR).

  • They ask for a high CIBIL score.

Most small shopkeepers and new entrepreneurs do not have these things. They have a great business idea, they are hard-working, but they don’t have property to pledge. So, the bank says “No.”

This is why the Government of India launched the Pradhan Mantri MUDRA Yojana (PMMY).

What is a MUDRA Loan? In simple words, MUDRA is a scheme to “fund the unfunded.” It is a special type of loan designed only for small, non-corporate, non-farm businesses.

The best part? You do not need any collateral. You don’t have to mortgage your house or give your gold to the bank to get this loan.

What is new in 2025? There is big news! Until last year, the maximum loan amount was ₹10 Lakhs. But now, under the new rules for 2025, the government has introduced a new category called “Tarun Plus,” where you can get a loan of up to ₹20 Lakhs!

This guide will make it simple. We will not use difficult banking words. We will explain everything step-by-step, like a friend guiding you.

  • Which MUDRA category is right for you (Shishu, Kishore, or Tarun)?

  • What documents do you really need?

  • How to apply online and offline?

  • And most importantly, why do banks reject applications and how can you avoid those mistakes?

A Very Important Note (Disclaimer): We at fiknow.com are here to give you knowledge. This article is for information and education only. It is NOT financial advice. We are not a bank or a government agent. Please read all loan documents from the bank very carefully before you sign.

Ready to grow your business? Let’s begin.

Part 1: What exactly is “MUDRA”? (The Basics)

 

“MUDRA” stands for Micro Units Development and Refinance Agency.

That sounds complicated, right? Let’s simplify it. Mudra is not a bank itself. You cannot go to a “Mudra Bank” branch. Mudra is an agency that gives money to other banks (like SBI, HDFC, PNB, and NBFCs) so that they can give loans to you.

The 3 Big Promises of a MUDRA Loan:

  1. Collateral-Free: This is the biggest benefit. As per RBI rules, banks are not allowed to ask for any collateral (security) for MUDRA loans up to ₹10 Lakhs. Your business idea is the security.

  2. No Processing Fee (for small loans): For the smallest category (Shishu), there is usually zero processing fee. For larger loans, the fee is very low compared to normal business loans.

  3. Affordable Interest Rates: While the interest rate is not “free,” it is reasonable. It is much, much lower than what a local moneylender (sahukar) would charge you.

Who is this loan for? It is for “Income Generating Activities.” This means you must use the money to make money.

  • Allowed: Buying a taxi, opening a salon, starting a papad-making unit, buying stock for your shop.

  • Not Allowed: Buying a personal car, paying for a wedding, or building a house.

  • Not Allowed: Farming (Agriculture). MUDRA is for “Non-Farm” activities. (Dairy and Poultry are allowed because they are “allied” activities, but growing crops is not).

Part 2: The 4 Categories of MUDRA Loans (Which One fits You?)

 

This is the most important choice you have to make. In 2025, there are four categories. They are named after the stages of a child’s growth.

1. Shishu (The “Baby” Stage)

 

  • Loan Amount: Up to ₹50,000.

  • Who is it for? This is for starters. If you want to start a very small business (like a vegetable cart, a small tea stall, or buying a sewing machine), this is for you.

  • Difficulty Level: Easy. The paperwork is very less. You usually don’t need to show ITRs.

  • Processing Fee: Nil (Zero).

2. Kishore (The “Teenager” Stage)

 

  • Loan Amount: From ₹50,001 to ₹5 Lakhs.

  • Who is it for? This is for businesses that have already started but need money to stabilize. Maybe you want to renovate your shop, buy more stock, or buy a small machine.

  • Difficulty Level: Medium. You will need to show some proof of business and bank statements.

3. Tarun (The “Young Adult” Stage)

 

  • Loan Amount: From ₹5 Lakhs to ₹10 Lakhs.

  • Who is it for? This is for established businesses that want to expand. Maybe you want to open a second branch or buy a big machine.

  • Difficulty Level: High. The bank will check your papers strictly. You need 2 years of ITR and a proper “Project Report.”

4. Tarun Plus (The New “Pro” Stage – 2025 Update!)

 

  • Loan Amount: From ₹10 Lakhs to ₹20 Lakhs.

  • Who is it for? This is a new category introduced by the government. It is a “loyalty reward.”

  • The Rule: You can ONLY get this loan if you have already taken and successfully repaid a Tarun loan before.

  • Why? The government wants to reward honest businessmen who pay back on time. If you are a new applicant, you cannot jump directly to Tarun Plus.

Fiknow.com Tip: Do not be greedy. Apply for the category that fits your current need. If you need ₹40,000 but apply for ₹5 Lakhs (Kishore), your loan will be rejected because your business size doesn’t match the loan amount. Start small, repay it, and then take a bigger loan.

Part 3: Are You Eligible? (The Checklist)

 

Before you go to the bank, check this list. If you can say “YES” to these, you are ready.

  1. Citizenship: Are you an Indian citizen? (Yes)

  2. Age: Are you between 18 and 65 years old? (Yes)

  3. Business Type: Is your business in Manufacturing, Trading, or Services? (Yes)

    • Examples: Shopkeeper, Artisan, Fruits/Veg vendor, Truck/Auto operator, Repair shop, Machine operator.

  4. Credit History: Are you a defaulter?

    • If you have taken a loan from any bank before and not paid it back, you are not eligible.

    • The bank will check your CIBIL score.

    • Internal Link: A good CIBIL score is your “financial character certificate.” Even for MUDRA, a score of 650+ helps a lot. To understand exactly how banks read this score, you must read our https://fiknow.com/cibil-score-guide/. It will help you fix your score before you apply.

  5. No Corporate: Is your business a “Corporate” (large company)? If yes, you are not eligible. This is for Micro and Small units only (Proprietorship, Partnership, Private Limited is okay if it’s small).

Part 4: Documents You Need (The “Paperwork”)

 

This is where most people fail. They go to the bank with empty hands. Be professional. Make a file with these documents before you go.

List A: For Shishu Loans (Up to ₹50,000) This is simple.

  1. Identity Proof: Aadhaar Card / PAN Card / Voter ID.

  2. Address Proof: Electricity Bill / Rent Agreement (for your shop or house).

  3. Photo: 2 recent passport-size photos.

  4. Quotation: If you are buying a machine (e.g., a sewing machine), get a “Quotation” (price bill) from the shopkeeper. This proves you will use the money correctly.

List B: For Kishore & Tarun Loans (Above ₹50,000) This requires more proof.

  1. All Documents from List A.

  2. Proof of Business Identity: Udyam Registration Certificate (very important!), GST Registration (if applicable), or Shop & Establishment License.

  3. Bank Statement: Last 6 months’ statement of your savings or current account.

  4. Income Proof: Last 2 years’ Income Tax Returns (ITR) and Balance Sheet (for loans above ₹2 Lakhs).

  5. Project Report: A typed document that explains your business plan.

    • What is your business?

    • Who are your customers?

    • How much profit will you make?

    • How will you repay the loan?

  6. Caste Certificate: If you belong to SC/ST/OBC category (banks have special targets for these categories, so it helps).

Pro Tip: Register your business on the Udyam Portal (it’s free and online). A Udyam Registration is like a “Birth Certificate” for your business. Banks trust it very much.

Part 5: How to Apply Online (The Digital Way)

 

In 2025, you don’t always have to run to the bank branch. You can apply from your phone.

Method 1: The Udyamimitra Portal (Official Govt Portal)

  1. Go to the website: www.udyamimitra.in

  2. Click on “Apply Now.”

  3. Register with your Name, Mobile Number, and Email.

  4. Fill in your details: Name, Address, Business details, Loan amount needed.

  5. The Best Part: You can select multiple banks in your area. Your application will be sent to all of them.

  6. If a bank likes your application, they will call you.

Method 2: The JanSamarth Portal

  1. Go to www.jansamarth.in (This is a new, unified portal for all govt schemes).

  2. Select “Business Activity Loan.”

  3. It will ask simple questions to check your eligibility.

  4. Once eligible, you can apply digitally. It connects directly to banks like SBI, PNB, etc.

Method 3: Bank’s Own Website (e-Mudra)

  • Many big banks like SBI have their own “e-Mudra” portal.

  • If you have a savings account with SBI, you can apply for a Shishu loan (up to ₹50k) online and get the money instantly in your account without visiting the branch!

  • Search for “SBI e-Mudra” on Google.

Part 6: How to Apply Offline (The Traditional Way)

 

For larger loans (Kishore/Tarun), the online method is just a start. You will eventually have to meet the Branch Manager.

Step 1: Choose the Right Bank

  • Go to the bank where you already have an account. They know you. They know your transaction history. They are most likely to say “Yes.”

  • Public Sector Banks (SBI, PNB, Bank of Baroda) generally give more MUDRA loans than Private Banks.

Step 2: Meet the Manager

  • Dress professionally.

  • Take your file (from Part 4) with you.

  • Ask for the “Mudra Loan Application Form.”

  • Do not say: “I want a loan.”

  • Say: “I have a business plan. Here is my Project Report. I want to apply under the MUDRA Kishore scheme.”

Step 3: The Interview

  • The manager will ask questions: “How will you sell your product?”, “Who are your competitors?”, “How much do you earn daily?”

  • Answer confidently. Show them you know your business.

Step 4: The Field Visit

  • For loans above ₹50,000, the bank officer will visit your shop or house to check if the business is real.

  • Make sure your shop is clean and running when they come.

Step 5: Sanction & Disbursement

  • If approved, you will get a “Sanction Letter.”

  • Important: The bank will often pay the money directly to the supplier of your machine/goods, not to your cash account. This is to prevent misuse of funds.

  • For working capital (daily needs), they might give you a MUDRA Card (which looks like a Debit Card) loaded with the loan amount.

Part 7: Interest Rates & Charges (The “Hidden” Costs)

 

Is MUDRA loan free? No. Is the interest rate fixed by the government? No.

  • Interest Rate: The government allows banks to decide the rate based on their “MCLR” (internal cost).

    • Generally, it ranges from 8.50% to 12.00% per year in PSU banks.

    • Private banks and NBFCs may charge higher (14% – 18%).

  • Processing Fee:

    • Shishu: Nil.

    • Kishore/Tarun: Usually 0.50% of the loan amount + GST.

  • Guarantee Fee (CGFMU):

    • Since you are not giving collateral, the bank pays a guarantee fee to the government (CGFMU).

    • Sometimes, the bank pays this. Sometimes, they charge you for it (about 0.5% to 1% per year). Ask the manager about this.

Part 8: Why Applications Get Rejected (Mistakes to Avoid)

 

Many people complain, “I applied for Mudra but got rejected.” Here are the top 5 reasons why, and how you can fix them.

Mistake 1: Poor CIBIL Score

  • The Truth: Even though it is a government scheme, banks do check CIBIL. If your score is below 650, or if you have “Written Off” loans in the past, they will reject you.

  • The Fix: Improve your score before applying. (Read our guide linked in Part 3).

Mistake 2: Unrealistic Project Report

  • The Truth: You apply for ₹10 Lakhs for a small tea stall. The bank knows a tea stall doesn’t need ₹10 Lakhs.

  • The Fix: Be realistic. Apply for an amount that matches your business size.

Mistake 3: Lack of Business Proof

  • The Truth: You say you run a business, but you have no registration, no board, and no photos.

  • The Fix: Get a Udyam Registration. It takes 10 minutes and makes your business “official.”

Mistake 4: Applying at Multiple Banks

  • The Truth: You apply at SBI, PNB, and HDFC at the same time. All of them see the other applications on your CIBIL report. They think you are desperate.

  • The Fix: Apply to one bank (preferably your own bank) and wait for their answer.

Mistake 5: Using “Agents”

  • The Truth: Someone tells you, “Give me ₹5,000 commission, I will get your MUDRA loan passed.”

  • The Fix: Never pay a bribe or commission. MUDRA is a direct process. These agents are often frauds.

Conclusion: Take the First Step

 

The Pradhan Mantri MUDRA Yojana is a powerful tool. It has helped crores of Indians stand on their own feet (Atmanirbhar).

It is not “free money.” It is a responsibility. It is a loan that you must repay. But if you have a true business dream, and you are willing to work hard, MUDRA can give you the fuel you need.

Your 3-Step Action Plan for Today:

  1. Register on Udyam Portal (if you haven’t).

  2. Check your CIBIL Score (fix it if needed).

  3. Prepare your Project Report (start small, dream big).

Go to your bank with confidence. You are not asking for charity; you are asking for a partnership in your business growth.

All the best for your business journey!

Frequently Asked Questions (FAQ) Section

 

Q1: Can I get a MUDRA loan if I don’t have an Income Tax Return (ITR)? A: For the Shishu category (up to ₹50,000), yes, you can usually get it without an ITR. But for Kishore and Tarun (above ₹50,000), most banks will insist on at least 1 or 2 years of ITR returns to prove your income stability.

Q2: Is there any subsidy in MUDRA loan? A: Generally, No. You have to repay the full amount with interest. However, there are some state-specific schemes or interest subvention schemes (like during the pandemic) that might offer small benefits, but the standard MUDRA loan has no subsidy on the principal amount.

Q3: How long does it take to get the loan? A:

  • Shishu: Can be very fast (7-10 days). Online e-Mudra can be instant.

  • Kishore/Tarun: Usually takes 20 to 30 days for processing, field visits, and verification.

Q4: Can I apply for a MUDRA loan to buy a commercial vehicle? A: Yes. You can buy an auto-rickshaw, taxi, e-rickshaw, or a small goods truck under MUDRA. This falls under the “Transport Business” category.

Q5: What is the Mudra Card? A: It is a RuPay Debit Card given to you if you take a “Working Capital” loan (Cash Credit). You can use it to withdraw cash from ATMs or buy raw materials directly from shops using a swipe machine. It makes using your loan money very easy.

Q6: I am a woman entrepreneur. Is there any special benefit? A: Yes! The government encourages banks to lend to women. Some banks and NBFCs offer a slightly lower interest rate (e.g., 0.25% lower) for women entrepreneurs under the “Mahila Uddyami Scheme” within MUDRA.

External Links (For Your Own Research)

 

We want you to be 100% informed. Please check these official government websites.

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