Mudra Loan for Small Businesses 2025 is designed for very small, non-farm enterprises – the kinds of units that may not fit into a big subsidy scheme like PMEGP but still need working capital or small-term loans to grow.
If you’re running (or planning) a tiny business – a kirana shop, mobile repair corner, tailoring unit, tiffin service, salon, small workshop, online reselling setup or even a street food cart – this is one scheme you should understand properly.
This guide explains the Mudra loan in plain language: how the Shishu, Kishore and Tarun categories actually work in 2025, who can apply, and how to approach banks without getting completely confused.
Table of Contents
1. What is Mudra / PMMY in Simple Terms
Pradhan Mantri Mudra Yojana (PMMY) is a refinance scheme of the Government of India for micro and small business loans up to ₹10 lakh.
Key points in very simple language:
You don’t apply to “Mudra office” directly – you apply to a bank / NBFC / MFIs which are member lending institutions.
The loan is for non-farm income generating activities – small trades, manufacturing, services.
Loan size decides the category – Shishu, Kishore or Tarun.
The government supports banks in lending; you repay the bank as per normal loan terms.
Think of Mudra as a label + support for small-ticket business loans, not a separate department where you stand in line.
2. Shishu, Kishore, Tarun – Loan Slabs & Who They’re For
Mudra loans are grouped into three slabs:
Shishu – up to ₹50,000
Kishore – above ₹50,000 and up to ₹5 lakh
Tarun – above ₹5 lakh and up to ₹10 lakh
How to think about them:
Shishu (up to ₹50,000)
For very early stage or tiny businesses:
New vegetable vendor
Small tea stall / snack cart
Home-based tiffin service just starting
Very small tailoring / embroidery setup
Small stock for a kiosk / street stall
Usually used for:
First stock
Basic equipment (stove, small machine, small fridge)
Simple working capital
Kishore (₹50,000 – ₹5,00,000)
For businesses that are past idea stage:
Kirana shop wanting to increase stock
Small mobile repair shop upgrading tools & inventory
Tailoring unit adding a few more machines
Small workshop, fabrication unit, service centre, salon, small restaurant, etc.
Used for:
Bigger working capital
Slight expansion, better tools, renovation of shop
Upgrading from “just starting” to “proper small business”
Tarun (₹5,00,000 – ₹10,00,000)
For growth stage micro/small businesses:
Well-running salon opening another chair or branch
Restaurant upgrading kitchen and seating
Small manufacturing / workshop adding more machinery
Online seller scaling inventory & warehouse
Used for:
Higher-end machinery & fixtures
Major renovation / expansion
Moving from purely local to slightly bigger operation
3. Who Can Get a Mudra Loan in 2025 (Eligibility)
Mudra is meant for non-corporate, non-farm micro and small enterprises.
Examples of eligible borrowers:
Individual business owners
Proprietorship firms
Partnerships
Small companies (if within MSME limits)
Self Help Groups (SHGs) / joint liability groups
Typical conditions:
Age 18+ (bank will set its own max age rules)
Business must be income generating, not personal consumption
You should be able to show some business plan, experience or clarity on what you will do with the money
You should generally not be a willful defaulter in any bank / financial institution
And practically:
For slightly bigger ticket loans (Kishore / Tarun), many banks like that you have Udyam registration and some basic books/records.
4. Which Businesses and Activities Are Covered
Mudra covers a wide range of small business activities, such as:
Shop and trade: kirana, general store, mobile shop, garments, cosmetics, stationery
Food & hospitality: small restaurants, cafes, bakeries, tiffin centres, dhabas, catering
Services: salon, spa, coaching centre, cyber café, repair shops (bike/mobile/home appliances), printing, small travel agency
Manufacturing / processing: small units making snacks, packaging, agarbatti, candles, handicrafts, leather goods, small engineering / fabrication items
Transport: small commercial vehicles (auto, taxi, e-rickshaw, small goods vehicle) used for business
Not covered (broadly):
Purely personal consumption loans
Some restricted / harmful activities (as per bank / RBI norms)
Large-scale manufacturing outside the micro/small range
Every bank has its own internal lists, but if your activity is a normal, legal, small business, chances are good it fits.
5. Loan Amount, Margin, Collateral, Interest & Repayment
Exact numbers differ bank-to-bank, but here’s the usual pattern.
5.1 Loan Amount
Shishu: up to ₹50,000
Kishore: ₹50,001 – ₹5,00,000
Tarun: ₹5,00,001 – ₹10,00,000
You don’t have to take the maximum; bank will decide based on your need + repayment capacity.
5.2 Margin / Own Contribution
Many banks will expect some own contribution (not always huge, especially for Shishu).
For tiny loans, sometimes margin can be very low.
For Kishore/Tarun, they may expect a small % of project cost as margin.
Think of it as:
“I am also putting a bit of my own money; I’m serious.”
5.3 Collateral
One of the selling points of Mudra is:
For eligible loans up to ₹10 lakh, banks are encouraged to give collateral-free loans, often backed by credit guarantee schemes.
However, two realities:
Smaller loans (Shishu, many Kishore) are often collateral-free.
For larger Tarun loans, some banks may still ask for security / co-borrowers / additional comfort, especially if your profile is risky.
Final say is always with the lending bank.
5.4 Interest Rate
Interest rate is decided by the bank, not fixed centrally.
It is usually linked to their base rate / MCLR / external benchmark + spread.
Different banks may give slightly different rates for the same type of Mudra loan.
Expect it to be like a normal micro-business loan, not as cheap as a home loan, but cheaper than informal moneylenders.
5.5 Repayment Tenure
Typically from around 3 years up to about 5–7 years, depending on loan size and purpose.
Working capital limits might be renewed yearly; term loans have equated instalments (EMIs).
6. Mudra vs PMEGP and Other MSME Schemes
Because you already have a PMEGP article, you can cross-link and clearly explain:
Mudra:
Good for very small to small business sizes (up to ₹10 lakh).
No central “subsidy” like PMEGP; just a regular loan under a government-supported framework.
Application is directly to bank; process often faster than PMEGP.
Works well for people who don’t want heavy paperwork or big DPRs.
PMEGP:
For project-type units – manufacturing/service with larger capex.
Has margin money subsidy (25–35% typical) that reduces your effective loan after lock-in.
More documentation, DPR, DLTFC screening, etc.
Ideal if you have a bigger project and can wait a bit longer.
So:
Need up to ₹10 lakh, mostly for working capital / small expansion? Mudra.
Setting up a structured new unit with significant machinery? PMEGP (plus state subsidies).
7. Step-by-Step: How to Apply for a Mudra Loan
You have two main routes: directly at a bank branch, or online lead generation.
7.1 Choose the Right Bank & Branch
Look for:
Bank where you already have an account (comfort & history help).
Branch that is known to be MSME-friendly (sometimes you learn this from local businesses).
7.2 Prepare Your Basic Plan
Before you go:
Know what your business is (or will be).
How much money you actually need (not just “maximum Tarun please”).
Rough breakdown:
stock / raw material
small machinery / tools
renovation / fixtures
working capital buffer
7.3 Visit the Branch
Ask specifically for a Mudra loan / PMMY loan for your type of business.
Fill the Mudra application form (bank will provide) with details:
Name, address, KYC
Nature of business
Existing business, if any
Loan amount and purpose
7.4 Submit Documents
KYC, proof of business / place, minimal financial details.
For Kishore/Tarun: a simple project report / business plan really helps.
7.5 Bank Appraisal
Bank will:
Check your CIBIL score
Look at your existing loans / credit history
Assess whether the business and EMI look repayable
Decide loan amount, tenure, rate, and whether collateral is needed
If sanctioned:
You sign loan documents
Loan is disbursed either as term loan, cash credit / OD, or a mix.
8. Documents Checklist for Mudra Loan 2025
Exact list differs per bank, but generally:
Aadhaar card
PAN card
Recent photographs
Address proof (voter ID, utility bill, etc.)
Proof of business:
Shop & Establishment certificate, GST registration, or
Udyam Registration (very useful)
Bank statements (last 6–12 months), if you already operate a business
Simple project report / business plan (especially for Kishore/Tarun)
Quotation(s) for machinery / equipment, if applicable
If new business:
Any experience proof (old employer letter, qualification certificate) can help build confidence.
9. How to Improve Your Chances of Approval
Banks reject a lot of applications simply because things look unclear or risky. A few practical tips:
Get Udyam Registration
Shows you are a formal MSME, not just “random person asking for money”.
Many banks are more comfortable giving business loans when the unit has Udyam.
Start with a Realistic Amount
Don’t jump straight to ₹10 lakh Tarun if you’ve never run this business.
Ask for what you can reasonably use and repay.
Keep CIBIL Clean
Pay existing EMIs and credit card dues on time.
Resolve small defaults before approaching the bank.
Show Some Own Contribution
Even if not huge, show you are investing time + money + effort.
Prepare a Simple Business Plan
3–4 pages are enough:
What you sell
Who buys
How much you expect to sell
Rough monthly expenses and profit
Be Clear in the Meeting
Speak plainly about your plan; avoid memorised, confusing jargon.
If you don’t know something, say you will take guidance – don’t bluff.
10. Example Scenarios (Realistic Use Cases)
10.1 Shishu – New Street Food Cart
Wants to set up a small chaat / snacks cart.
Needs money for cart, stove, utensils, initial raw material.
Applies for ₹40,000 Shishu Mudra loan.
Repays in small EMIs from daily earnings.
10.2 Kishore – Existing Kirana Shop Expanding Stock
Already running a small kirana store.
Wants to stock more FMCG products + fridge for cold drinks.
Applies for ₹3 lakh Kishore loan.
Shows 12-month bank statement to prove existing cash flow.
10.3 Tarun – Salon Upgrading and Adding Chairs
Salon running for 3 years.
Wants new chairs, wash stations, AC, interior work, more products.
Applies for ₹7 lakh Tarun loan.
Gives GST data / Udyam / IT returns to show past performance.
These are the kinds of real-life uses Mudra is meant to support.
11. FAQs – Mudra Loan for Small Businesses
Q1. Is Mudra a subsidy or a loan?
Mudra is basically a loan scheme. There is no PMEGP-style margin money subsidy; you repay full loan + interest as per bank terms.
Q2. Is collateral always not required?
For many small Mudra loans, banks try to give collateral-free loans, often using guarantee schemes. But final decision on collateral is always with the bank and depends on amount, profile and policy.
Q3. Does Mudra guarantee that my loan will be approved?
No. Mudra does not force a bank to sanction every application. Bank still checks CIBIL, capacity, business viability.
Q4. Can I apply for Mudra if my business is completely new?
Yes, Mudra supports new and existing businesses. For new ones, your plan, experience and Udyam registration become more important.
Q5. Do I need Udyam registration for Mudra?
For very tiny Shishu loans, some banks may not insist. But for Kishore/Tarun, and for long-term MSME benefits, having Udyam registration is strongly recommended – it improves your profile and opens other schemes later.
Need help with Udyam/MSME registration or corrections before applying for a loan?
Contact Eudyamaadhar at 🌐 eudyamaadhar.org or 📞 +91 92412 50551 and get it done correctly in one go.