How to Apply for Mudra Loan

How to Apply for Mudra Loan

We will skip all the fuss about Mudra Yojana and avoid describing the Yojana here. We are sure are very much aware of the Yojana by now. However, you may not be sure about the process of applying for Mudra Loan. So, we will directly focus on the subject instead of beating around the bush. What say?

Let’s begin…

How to Apply for Mudra Loan

How to apply for Pradhan Mantri Mudra Loan?

There are basically four steps involved starting from application to loan disbursal. Le will take a look at those four steps first (without going into explanation of any sort). The four steps are:

STEP 1: Think of a bank or any other lender that you want to use for taking out Mudra Loan and find out the documents that will be required by that organization. Once you have the list in your hand, prepare and business plan and of course, make sure that you arrange all the documents that will be required. Here, you need to decide the category in which your business will fall – Shishu, Kishor or Tarun.

STEP 2: Go to your preferred bank or financial institution that is not a bank and ask for the loan application form. Mention the category and the institution will hand over the relevant form to you.

STEP 3: Fill in the form properly and then attach all the documents and submit the same to the bank or the financial organization of your choice. The institution will verify the documents and if everything is in place, the institution will process the application.

STEP 4: Once the processing is completed, the bank or the financial institution will issue a MUDRA Card, which will be preloaded with the sanctioned loan amount. This card will work as a debit card and can be used for cash withdrawal from ATMs or can be used for purchases at POS terminals.

Now that we have a preliminary idea of how to apply for Mudra Loan, we need to go for a detailed analysis.

Detailed Analysis of the Steps Involved in Applying for Mudra Loan

The First Step:

The first thing you need to know that there are various organizations that offer Mudra Loan. These include banks in public sector, banks in private sector, regional rural banks and even micro finance institutions such as trusts, NBFCs (non-banking financial companies), societies etc.

You are free to select any. Which one should you select? There are multiple factors that come into play in this scenario. First thing first, you need to find out which financial companies (banks or non-banks) offer this loan in your area. Then, you need understand your own affinity and finally, you need to look at trustworthiness of the financial companies. Well, all of them can be trusted because they operate under the guidelines of the Union Government of India.

Based on these factors, you will have to make a choice. Once you choose the financial company that you want to approach, you need to do one thing: “Prepare a Business Plan”. This business plan will spell out the nature of your business, the scope of this business and its projections in near future (may be 2 or 3 years or up to 5 years). This is where you need to analyze the category in which you fall. You can be in Shishu Category, in Kishor Category or in Tarun Category.

The Second Step:

Once you have the business plan in place, you can approach the bank or non-banking financial company and present your business plan. This is where, the financial company will analyze the plan and tell you the category in which you fall.If necessary, the company representative can talk to you to discuss your business plan and it may happen that a different category is suggested to you and a different loan amount is suggested to you.

Depending on the category, the financial company will tell you the documents you need and hand over the form to you. Remember that the list of documents that will be asked for will differ for different categories with some common documents for all.

The Third Step:

Bring back the form with you. Fill it in properly and then properly attach the documents that you need to provide. Now, carry the filled in form and all the necessary documents along with you and go to the financial company. Submit the form and the documents. The company will take its time to verify each and every document. Once the verification is completed, the loan amount will be sanctioned.

The Fourth Step:

After the loan amount has been sanctioned, the bank or the company will give you the Mudra Card, which will be preloaded with the loan amount that has been sanctioned for you. This card can then be used by you as a debit card because it is actually a debit card (from RuPay). You may purchase raw materials for your business using this card or if you need cash, you can use it to withdraw money from any ATM.

That’s how the application for Mudra Loan works.

The big question now is…

What are the documents you need to provide?

As we mentioned earlier, the documents you need to provide will depend on the category in which you are placed. Of course, there will be some common documents for all categories but there will be category specific requirements as well. Here is the list of some of the documents you will have to provide:

  • A document that will prove your identity. It has to be self-attested.
  • A document that will prove the address of your residence. It too has to be self-attested.
  • Two recently clicked colored passport photographs.
  • If you have purchased any machinery or any item that you require for your business, you need to provide its quotation.
  • If you have purchased any such machinery or item, you need to provide:
    • Supplier’s name
    • Machinery details
    • Machinery price etc.
  • You need to disclose every single business asset you have and every single business liability you have.
  • Your company’s address and identity proof.
  • Your business’ registration certificate, license etc. that can be used to verify that you own the business as a sole proprietor or in partnership etc.
  • If you belong to a minority group or you are a person from BC, ST or SC community, you need to provide the proof.
  • You need to provide your balance sheet, sales tax returns and IT returns for previous 3 years.
  • If your business premise is a rented one, you need to provide the copy of rental agreement.
  • If there is any kind of term loan on your business name, you need to provide 2 years’ projection of your balance sheet. The same has to be provided if a limit has been put on the working capital your business can have.
  • You may be asked to provide proforma invoices.
  • You may have to provide Articles of Association (depending on the nature of the company / organization).
  • You may have to provide Partnership Deed if you have a partnership firm.

So basically, the number of documents you need to provide will be dictated by the nature of business you have and the type of company you hold.

Make sure you are eligible

Before you do any of the aforementioned things, you need to make sure that you are actually eligible for applying for a Mudra Loan in the first place. Here are the conditions you need to satisfy:

  • You should be Resident Indian. NRIs or foreigners are not allowed to apply for Mudra Loan.
  • Your business should fall under MSME category (Micro, Small and Medium Enterprise).
  • Your business should not be about generating agricultural income or farm income. If that happens, your application will be cancelled.
  • Your business should belong to any of the following sectors:
    • Land transport
    • Textile industry
    • Food products
    • Community services
    • Personal services
    • Social services

Only if you satisfy the aforementioned conditions, you can apply for Mudra Loan.

Very Important:

If you are holding a Jan Dhan Account and you have taken out an overdraft of INR 5,000, that will be considered as a Shishu Loan.

Helpline of Mudra Bank

If you are interested in learning anything about MUDRA products, you can directly approach a Nodal Officer. Here is a quick list of officers who are there to provide you with assistance for all your queries:

That’s pretty much all for now. There is nothing more you need to know about the process flow. Now, you can head for a financial company that is offering Mudra Loan.

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