Key Points Between Mudra Loan and Business Loan

Mudra loans as an entrepreneur, you may have various financing options available to fund your business venture. Among the most popular types of loans in India are Mudra loans and Business loans. While both can help entrepreneurs fund their business operations, there are some key differences between the two.

Introduction of Mudra Loan and Business Loan

Mudra loans and Business loan are types of financing options available to entrepreneurs. Mudra loans were launched by the Government of India in 2015, while business loans have been around for many years. In this article, we will discuss the differences between the two and help you understand which one may be more suitable for your business needs.

Mudra Loan

Mudra loans are a type of financing option that the Government of India launched to provide financial assistance to small and micro-enterprises. The loans are available through Mudra (Micro Units Development and Refinance Agency) which works as a subsidiary of Small Industries Development Bank of India (SIDBI). The primary objective of Mudra loans is to provide financial assistance to small businesses and help them grow and expand.

Types of Mudra Loans

There are three types of Mudra loans available,

⦁ Shishu – This loan is for businesses that are in the early stages of development and require a small amount of money to start their operations. The loan amount can range from INR 50,000 to INR 10 lakhs.

⦁ Kishore – This loan is for businesses that are established and require a higher amount of capital to expand their operations. The loan amount can range from INR 10 lakhs to INR 50 lakhs.

⦁ Tarun – This loan is for businesses that are well established and require a significant amount of capital to expand their operations. The loan amount can range from INR 50 lakhs to INR 10 crores.

Eligibility Criteria for Mudra Loans

To be eligible for a Mudra loan, you must meet the following criteria,

⦁ The business must be a small or micro-enterprise
⦁ The business must be in the manufacturing, trading, or service sector
⦁ The business must have a valid business plan
⦁ The business must have a good credit score
⦁ Interest Rates for Mudra Loans

The interest rates for Mudra loans depend on the type of loan and the amount borrowed. The interest rates for Shishu loans can range from 8.10% to 12.25%, while the interest rates for Kishore and Tarun loans can range from 9.75% to 12.25%.

Business Loan

A business loan is a type of financing option that is available to entrepreneurs to help them start or expand their business operations. Business loans are offered by banks, financial institutions, and non-banking financial companies (NBFCs). The loan amount and interest rates for a business loan depend on the creditworthiness of the borrower.

Types of Business Loans

There are several types of business loans available, including,

Term Loans – These are loans that are repaid over a fixed period of time with interest.
Working Capital Loans – These are loans that are used to fund day-to-day business operations, such as inventory purchase and payroll.
Equipment Loans – These are loans that are used to purchase equipment necessary for business operations.

Eligibility Criteria for Business Loans

The eligibility criteria for business loans may vary depending on the lender. However, some of the common eligibility criteria include,
⦁ The business must have a good credit score
⦁ The business must have a valid business plan
⦁ The business must have been in operation for a certain number of years
⦁ The business must have a certain level of revenue

Interest Rates

As an entrepreneur or business owner, finding the right financing option for your business can be a challenging task. With so many loan options available, it can be difficult to choose the best one for your business. Two popular options for small business financing are Mudra Loans and Business Loans. In this article, we will explore the key differences between these two types of loans, including interest rates.

The interest rate is one of the most important factors to consider when applying for a loan. It determines the cost of borrowing and affects your ability to repay the loan. Business loans and Mudra loans have different interest rates, which can make a significant impact on your business’s finances.

Mudra Loan Interest Rates

Mudra Loans are offered by the Indian Government to support small businesses and entrepreneurs. These loans are designed to provide financial assistance to those who do not have access to traditional financing options. Mudra Loans are categorized into three types – Shishu, Kishor, and Tarun, depending on the amount of funding required.

The interest rates for Mudra Loans depend on the category of loan and the lender. The interest rate for Shishu loans, which provide funding up to Rs. 50,000, ranges from 8.05% to 12.55%. For Kishor loans, which provide funding between Rs. 50,001 and Rs. 5 lakhs, the interest rate ranges from 9.10% to 13.45%. Lastly, Tarun loans provide funding between Rs. 5 lakhs and Rs. 10 lakhs, with interest rates ranging from 10.10% to 16.25%.

Business Loan Interest Rates

Business Loans are offered by banks, NBFCs, and other financial institutions to support small and medium-sized businesses. These loans can be used for a variety of purposes, such as purchasing inventory, expanding operations, or investing in equipment.

The interest rates for business loans vary depending on the lender, loan amount, and creditworthiness of the borrower. Generally, business loans have a higher interest rate than Mudra Loans, as they are unsecured loans and involve more risk for the lender. The interest rates for business loans in India can range from 8% to 24%, depending on the lender and the borrower’s credit score.

Loan Type Interest Rate Range

1). Mudra Loans 8.05% to 16.25%
2). Business Loans 8% to 24%
As you can see, the interest rates for Mudra Loans are generally lower than those for Business Loans. However, the amount of funding available through Mudra Loans is limited, while business loans can provide larger amounts of funding.

Conclusion

Choosing the right financing option for your business requires careful consideration of your financial needs and goals. Mudra Loans and Business Loans are both viable options for small business financing, with different interest rates and eligibility criteria. By understanding the key differences between these two loan types, you can make an informed decision and choose the financing option that best fits your business’s needs.

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