PM Mudra Yojana: Collateral-Free Business Loan up to ₹20 Lakh, Explained

Last reviewed: 4 November 2026

The short version

Mudra loans are collateral-free and guarantee-free loans for small non-farm businesses: shops, workshops, services, small manufacturing, and allied farm activities. The loan is given by a bank, NBFC or microfinance lender, not by MUDRA itself. MUDRA only refinances the lender. It is a loan you must repay with interest, not a grant or subsidy.

The four loan sizes

Category	Loan amount	Who it suits
Shishu	Up to ₹50,000	Just starting, tiny set-up
Kishore	₹50,001 to ₹5 lakh	Business running, needs to grow
Tarun	₹5 lakh to ₹10 lakh	Established business expanding
Tarun Plus	₹10 lakh to ₹20 lakh	Borrowers who repaid earlier Tarun loans well

Which category should you ask for?

• Add up exactly what you need to buy: machinery, stock, shop fit-out, working capital for 2 to 3 months. Ask for that amount, not a round bigger number.
• Under ₹50,000 and just starting: Shishu.
• Already earning and expanding up to ₹5 lakh: Kishore.
• Bigger, with a record of sales: Tarun, and later Tarun Plus.
• Borrowing more than you can repay is the main risk, not getting rejected.

Who can apply?

• Individuals, proprietors, partnership firms and small companies running or planning a small non-farm income-generating business.
• No special education requirement. The lender decides on the strength of your plan, past record and papers.

Documents usually asked for

These vary by lender, so ask your branch for their checklist. Commonly:

• Identity and address proof (Aadhaar, PAN, voter ID)
• Passport-size photos
• Proof of the business or its address, if already running (shop licence, Udyam registration, GST if applicable)
• Last 6 to 12 months of bank statements
• A short note on what you will buy or do with the money, with quotations for machinery or stock

How to apply

1. Online: through the government’s Jansamarth portal or the website of the lender you choose.
2. In person: at the branch of any bank, NBFC or microfinance institution that offers Mudra loans. Your own bank where you have an account is often the easiest start.
3. The lender checks your proposal and papers and sanctions the loan. MUDRA does not use agents or middlemen.

What the loan really costs: a worked example

The interest rate and processing fee are decided by each lender and are not fixed by the scheme. Ask for both in writing and compare two or three lenders.

Illustration only, with an assumed rate: suppose you borrow ₹2,00,000 for 3 years at 12% a year (this rate is an assumption, not an official Mudra rate). The monthly instalment (EMI) would be about ₹6,643. Over 36 months you would pay about ₹2,39,000 in total, so roughly ₹39,000 of that is interest. If your business cannot comfortably pay ₹6,643 every month, ask for a smaller amount or a longer period.

Rule of thumb: your EMI should be well below what the business earns in a typical month after other expenses.

A strong application looks like this

• It names exactly what you will buy, with quotations.
• It shows how the business earns today, with bank statements or a simple sales record.
• It shows how the new money will increase income, in plain numbers.
• Your KYC documents match (same name and address everywhere).

Common mistakes

• Paying an agent. MUDRA does not use agents; no one can “guarantee” a sanction for a fee.
• Applying for a bigger category than your business plan supports.
• Not keeping business bank statements. Lenders look at how money moves in your account.
• Missing instalments, which damages the credit score and blocks the next, larger loan.
• Confusing it with farm loans. Mudra is for non-farm activities (with some allied activities).
• Not asking for the total cost in writing, including processing fees and any insurance bundled in.

Example

Anita runs a small tailoring unit from home and needs two more machines and cloth stock costing ₹1.5 lakh. She applies in the Kishore category at her bank with her Aadhaar, PAN, six months of bank statements and machine quotations. No collateral is asked. She repays in monthly instalments and later qualifies for a bigger loan.

Frequently asked questions

Is a Mudra loan a subsidy? No. It is a regular loan, just without collateral. You repay it with interest.

Do I need a guarantor? The scheme describes these loans as free of collateral and third-party guarantee.

Can I get it for farming? Mudra is for non-farm income-generating activities and some allied activities, not ordinary crop farming.

Will being rejected once stop me from applying again? No. Ask the lender for the reason, fix the gap, and apply again, or try another lender.

I need a business account first? Having a bank account with regular transactions helps. A Jan Dhan account is a starting point if you have none.

Sources

• SIDBI: How to apply for a PM Mudra loan online
• MUDRA official FAQ

Loan limits, eligibility and rates are decided by the government and lenders and can change. Document lists and rates here are general; the EMI example uses an assumed rate. Confirm with your lender before applying.