MUDRA loan and a business loan are the two loan products that come to a business owner’s mind when he thinks of availing credit facility. However, there are a few differences between the two.
Knowing the same can help the business owner make a wise choice that can benefit his business. In this blog, we shall discuss business and Mudra loan details, which will help you make the decision that would benefit your business.
Table of Contents
What is MUDRA Loan?
MUDRA stands for Micro Units Development & Refinance Agency Ltd. It is a government scheme that is specifically designed and set up by the government to help small business owners by providing them with financial aid.
The MUDRA scheme was announced by Hon’ble Prime Minister on April 8, 2015. There are many MUDRA loan benefits, such as the borrower can avail a loan up to Rs. 10 lakhs.
What is a Business Loan?
A business loan is a credit facility extended by various banks and NBFCs in India. It is a loan facility that is intended to help business owners meet their business needs, expansion plans, and other such business requirements. The business loan benefits are manifold.
Now, let’s discuss the difference between MUDRA loan and business loan to comprehend which one is the best suited for a small business owner.
Interest rate
The interest rate of the loan is one of the most critical aspects that every borrower considers while applying for a loan.
MUDRA loan interest rate depends on the banks from where the borrower is applying for the assistance. Notably, the interest rate starts at 8%.
And for a business loan, the rates are very competitive in the market. The NBFCs offer business loans at the lowest interest rates to help the borrower get access to the facility without burdening himself much.
Online
The process for both MUDRA loans and a business loan is online as well as offline. Thus, the borrower can apply MUDRA loan and business loan online and offline.
The online, as well as the offline application process, provide the borrower options to apply small business loan as per his ease.
Collateral-free
Providing collateral to back the business loan amount is one of the difficulties faced by small business owners. Most business owners either don’t have collateral to offer or they are not willing to provide collateral.
To help small business owners overcome this difficulty, many loan lenders offer collateral free business loans. Loans under Pradhan Mantri Mudra Yojna are offered without collateral.
Therefore, business owners are not required to hypothecate any asset. And the same is with business loans.
There are many NBFCs in the market that offer business loans without security. Thus, easing availing business loans to much extent.
Eligibility
MUDRA loan eligibility is a bit strict when compared to business loan. Only small manufacturers, artisans, fruit and vegetable dealers, shopkeepers, and individuals engaged with agriculture can avail loan under MUDRA yojana.
Now, you must be thinking what the eligibility is for a business loan? Well, the eligibility for an NBFC business loan is not very strict. Their eligibility criteria include:
- The business vintage of at least two years
- Last year ITR of at least Rs. 1.5 lakhs
- Minimum turnover of more than Rs. 10 lakhs
- Business place and the house should be separate
- A business owner should either own a business place or house
The borrowers can easily meet the business loan eligibility criteria.
Documents
To avail a loan under PMMY, the borrower has to submit various documents. So, if you are wondering what documents are required for MUDRA loan, then the following are the documents required to apply for MUDRA loan:
- Identity proof – any of PAN card, driving license, voter ID card, Aadhaar card, Passport, etc.
- Residence proof – any of recent electricity bill, telephone bill, passport, voter ID card, Aadhaar card, etc.
- Passport size photo – 2
- Identity proof of business establishment
- Address proof of the business
- Rental agreement of the business premise, if rented
- SSI registration certificate
- If the small business loans are above Rs. 2 lakh, then audited balance sheet of the previous two years along with sales tax ad and income tax
- Clearance certificate from pollution board
- Partnership deed for partnership business
- For a company, MoA and AoA
These are a lot of documents for a business owner to provide. However, if he thinks of availing a business loan, he is required to provide just a few documents, including:
- PAN card
- Bank statement for the previous nine months
- Business and address proof
- ITR of the previous two years
So, in the end, one can conclude that MUDRA yojana and business loan both have perks and disadvantages. But when we weigh the perks, a business loan from an NBFC is a better choice, and one can easily avail it from various online channels.
