All About Tarun Loan in Mudra Yojana
The Union Government of India introduced something known as the Mudra Yojana back in April, 2015. The scheme is still operational and many intended beneficiaries have benefited under this scheme. The primary objective of this scheme or yojana was to provide financial aid to micro and small businesses. The whole idea was based on refinancing where a mother institution known as MUDRA Limited would be financing lenders for both banking and non-banking sectors, who would in turn give loans to such small and micro businesses in India provided:
- Those businesses are not engaged in farm activities.
- Those businesses do not have finance requirements exceeding INR 10 lakhs.
Only if these conditions are satisfied, business owners will get loans under Mudra Yojana. However, there are some important things you need to know about the yojana. They are:
- The loans provided under the yojana are categorized and address the various stages of a business such as growth, development and finally funding. The three variants of loans that are allowed under the scheme include:
- Shishu Loan (signifies growth): Max loan amount allowed in this category is INR 50,000
- Kishor Loan (signifies development): Max loan amount allowed in this category is INR 5 lakhs and minimum loan amount allowed in this category is INR 50,001.
- Tarun Loan (signifies funding): Max loan amount allowed in this category is INR 10 lakhs and minimum loan amount allowed in this category is INR 500,001.
- Shishu loan is independent of business performance and borrower’s credit history while Kishor and Tarun loans are dependent on business performance and borrower’s credit history.
- The interest rate for Shishu loan is predetermined at 12% per year but for Kishor and Tarun loans, banks and non-banking lenders will decide the interest to be applied.
- For Shishu loan, repayment period is 5 years but for Kishor and Tarun loans the banks and non-banking lenders will decide the repayment period to be granted.
This article in particular is dedicated to Tarun loan variant of Mudra Yojana.
Tarun Loan Details
Tarun Loan is the last loan variant made available under Mudra Yojana. This loan variant is designed to meet the funding needs of business that have grown out of ‘Growth Stage’ and ‘Development Stage’.
These are big businesses but are not corporates and are usually classified as Medium Enterprises in business lingo.
Those business that are eligible for Tarun Loan need to ensure that:
- They are not involved in any kind of farm activities for income generation.
- They have proper business history and performance.
- The borrowers (business owners) have proper credit history.
Only when these three conditions are ‘Properly’ met, the lending institution (banks, NBFCs or Non-Banking Finance Companies and MFs or Micro Finance companies) will ensure that the interest rates are low and reasonable and the repayment tenure provided to the borrower is also reasonable.
Banks, NBFCs and MFs need to follow the scheme guidelines as well as RBI guidelines but are free to actually determine the interest they will charge depending on the risk they need to offset.
In Tarun Loan, the maximum loan amount that can be granted is INR 10 lakhs. The minimum loan that one should take under this loan variant is INR 500,001 (5 lakhs and 1 rupee).
Types of business constitutions that can take out Tarun Loan
The business can be:
- Proprietorship business
- Partnership business
- Ltd. Business
- A Ltd. Company
If the business entity has any other type of constitution, that has to be clearly specified.
Documents required for Tarun Loan
The documents that are required for Tarun Loan are mentioned below. However, do understand that the list provide is not exhaustive in any sense. Depending on the region / state / area of business, the number of documents required can be increased by the banks or other lenders. Also, simply providing the documents may not be enough as banks or other lenders can actually ask the business owner(s) to pay a visit and have a talk with the bank / lending institution’s officials and discuss the whole business plan in details. So, let us take a look at the documents that are usually asked for from those who apply for Tarun Loan:
- A self-certified or self-attested identity proof – Voter Card, Driving License, Passport, Aadhaar Card and PAN Card – any one has to be provided.
- If the borrower belongs to minority group or from OBC community or SC community or ST community, a proof has to be provided for the same.
- Residence proof has to be provided. Any of the following documents will work:
- Proprietor / Directors / Partners Passport.
- Proprietor / Directors / Partners Aadhaar Card.
- Proprietor / Directors / Partners Voter Card.
- Proprietor / Directors / Partners receipt of property tax (can, under no circumstances, be older than 60 days).
- Proprietor / Directors / Partners electricity bill (recent only).
- Proprietor / Directors / Partners telephone bill (recent only).
- Address proof and identity proof of the business enterprise. The following documents will work:
- Copies of registration certificate
- Copies of licenses that are relevant
- Any document that proves business ownership, address of business unit and identity of business unit.
- 6 months’ bank statements.
- Balance sheet of previous two years.
- Sales tax returns.
- Income tax returns.
- 1 year’s projected balance sheet if there are limits on working capital.
- If the business has a term loan, the projected balance sheet for term loan tenure is to be provided.
- Current fiscal year’s sales figure all the way up to the date of application submission.
- If the business has a proposed project, the project report has to be provided with following details in place:
- Economic viability.
- Technical details.
- Machinery that the business has to acquire.
- Price of machinery.
- Supplier’s name.
- Assumed capacity utilization.
- Sales projected.
- Production details.
- Balance sheet (projected for loan tenure).
- Statements of profits and losses (projected for the loan tenure).
- In case of Partnership business, Partnership Deed’s copy.
- Memorandum of Articles copies.
- Articles of Association copies.
- If guarantee from a third party is absent, the lender may ask for statements of liabilities and assets of borrower / Directors / Partners so that the lender can assess the net worth.
- Two colored passport photographs (recent) of Partners / Proprietor / Directors.
How to apply for Tarun Loan?
Application for Tarun Loan is no different than application for any other loan variant under the Mudra Yojana. The borrower needs to have the entire business plan sketched out on paper. The borrower needs to approach a lender (banks / NBFCs / MFs) and present the business plan and simply state the category (Tarun in this case).
The lender will hand over a form. The form is same for both the Kishor variant and the Tarun variant. However, a lender may actually create a separate form but that is usually not the case.
Not every business is entitled for Tarun Loan. You should know your business requirements and know the phase in which your business is before applying for a loan variant under Mudra Loan. Your business should be classified as Medium Enterprise of MSMEs (Micro, Small and Medium Enterprises) and your business should be looking for funding and not for growth and development. If the lender finds otherwise, the loan application will be turned down by the bank / lender and an alternate loan may be suggested. So, know your business! That’s really important.