In the last few years, India’s Micro, Small and Medium Enterprises, or MSMEs have solidified their position as a leading contributor to the country’s GDP. Stated by the Financial Express, the number of registered MSMEs in the country increased from 21.21 lakh in FY19 to 25.13 lakh in FY20, observing an 18.49% growth.
This exponential growth in the sector has been further bolstered by several government initiatives that have allowed these enterprises to avail financing without any hassle. One of the most significant government-backed initiatives that have allowed thousands of budding businesses to gain their footing in their respective industries has been Mudra loans.
Following is an elaboration of what these loans entail, the Mudra loan eligibility and documentation needs, and the alternative source of funding that individuals can turn to if they do not come under the purview of these loans.
What are Mudra Loans?
On April 8th 2015, the Honourable Prime Minister of India had launched the Pradhan Mantri MUDRA Yojana (PMMY) in a bid to offer financial support to the country’s MSME sector in the form of Mudra loans. These loans, available up to a quantum of Rs. 10 Lakh can be utilised for variegated purposes that result in employment creation or income generation.
Some of the most popular avenues towards which this loan is directed include –
- Working capital
- Equipment finance
- Capital for agriculture-allied, non-farming activities
- Purchasing two-wheelers for commercial purposes
Now, financing under Mudra loans is available through three distinct categories. These are –
This product under Mudra’s offering is available to entrepreneurs who are looking to set up their ventures or are still at the initial stages of their business. Shishu loans are available up to a quantum of Rs. 50,000 and can be utilised to purchase machinery and such.
Under this product, borrowers can avail a loan amount ranging between Rs. 50,000 and Rs. 5 Lakh, and can utilise it to fund their business’s expansion.
Loans under this product are available from Rs. 5 Lakh and up to an amount of Rs. 10 Lakh. This particular category of loans is available only to those businesspersons who have already established their businesses, and are looking for capital to expand them or keep operations running smoothly.
However, to avail the loans pertaining to any of these products, borrowers will have to satisfy a few Mudra loan eligibility criteria.
Eligibility Criteria for Avail Mudra Loans –
To qualify for these loans sanctioned under the PMMY, individuals will need to comply with the following eligibility criteria checklist.
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To avail the loan, one must be -
- Between 18 and 65 years of age.
- An individual
- A trader
- An MSME
- A business owner
- A manufacturer
- Small industrialist
- Entrepreneur of a start-up
- Individuals engaged in allied agricultural activities since April 1st, 2016.
Mudra loan eligibility criteria are, thus, extremely simple to comply with, allowing individuals to access them without any hassle.
Apart from these, individuals will also need to submit a few documents to avail these loans under Mudra.
List of Documents to Submit to Avail Mudra Loans –
Before applying for these loans, individuals must be aware of the complete list of Mudra loan documents that need to be submitted for each of its Sishu, Kishor and Tarun components. These are –
- General documents –
- Identity proof – These can include PAN Card, Voter ID, Passport, Aadhaar Card, photo ID, and such.
- Proof of residence – Passport, electricity bill (dated for last 3 months), recent telephone bill (dated for last 3 months), property tax receipt, Voter ID card, recent bank statements attested by designated officials, Aadhaar card.
- A self-written business plan.
- 2 passport-size photographs of the applicant and co-applicant (if necessary).
- Identity and address proof of the business – Copies of the registration certificate and business license. For this purpose, individuals can also furnish other documents containing the business address and owner’s name.
- Clearance certificate obtained from the state’s pollution control board (if applicable).
- Rental agreement if the business is in a rented facility.
- Few businesses have to furnish the Small Scale Industry registration certificate provided by the Ministry of Micro, Small and Medium Enterprises.
- For loan applications of Rs. 2 Lakh and above, business owners will have to submit audited balance sheet for the past 3 years, alongside income or sales tax returns.
- For loan applications of above Rs.2 lakh, business owners will need to submit projected balance sheets for the upcoming 2 years for projected loan tenure and working capital limits.
- In case the business is a partnership, individuals will need to submit a partnership deed.
- For companies, owners will need to submit Articles of Association (AoA) and Memorandum of Association (MoA).
- Promoters and Guarantors will need to submit liability and asset statements and income tax returns.
- Requisite documents and certificates for individuals belonging to ST/SC or any other special category looking to avail loans under these categories.
- Copies of title deeds or lease deeds to be submitted if businesses are operating out of properties which are offered as “Primary”.
Other Mudra loan documents specific to businesses –
- For vehicle loans under Mudra -
- Duly filled form for PMMY.
- 2 passport size photographs of borrowers.
- Duly filled form for vehicle loan application.
- Identity proof.
- Address proof.
- Income proof.
- Bank statements generated in the past 6 months.
- For business loans (Group and Rural business credits) -
- Duly filled PMMY form.
- Duly filled business instalment loan form.
- Duly filled rural business credit form.
- Age proof.
- Photo ID proof.
- Address proof.
- Proof of the continuity of business.
- Documents pertaining to proof of ownership of a residence or office.
- Bank statements generated in the past 12 months.
- Income tax return proof from past 2 years.
- For business instalment loan
- Duly filled PMMY application form.
- Duly filled business instalment loan application form.
- Photo ID proof.
- Address proof.
- Documents pertaining to ownership of residence or office.
- Documents as proof of establishment.
- Proof of qualification.
- Trade references.
- Business continuity proof.
- Bank statements generated in the last 6 months.
These are the documents that prospective borrowers must submit along with complying with the aforementioned Mudra loan eligibility criteria to avail the advance.
Now, while the advent of this initiative by the government has certainly been extremely rewarding for the MSME sector, the eligibility and long list of documents can also be a hindrance in some cases and limit the loan’s accessibility. In such cases, prospective borrowers can easily turn to other funding options like gold loans to meet their business’ financial requirements.
These loans, especially when availed from lenders like Rupeek Fintech Pvt. Ltd., can be extremely convenient owing to the plethora of benefits they offer. With features like doorstep loan availability, 30-minute loan disbursal, minimal documentation, high LTV, no end-use restrictions and such features, these loans are viable alternatives that can help you meet business requirements without hassle, in case you do not qualify for a Mudra loan.