Business Loan

How is a Mudra Loan Different from a Business Loan?


When running a business, it is vital to ensure that the cash flow is properly managed. There can be situations when you are on a growth path and need more funds to support your efforts. But there is a chance that you do not have enough reserves to support your targets. This is where you need to opt for a business loan. Many banks and NBFCs offer a range of loans. These loans help you with your urgent money needs.

Mudra loans are one of the popular loan options for business owners. There is no need to offer any security to get this loan. You can use this amount for any business need that you may have. This could include paying bills, buying materials, machines, or other costs.

Mudra loans are given for amounts of up to Rs. 10 lakhs with interest rates starting from as low as 8% per annum. Mudra loans are given through banks and NBFCs.

Do you know that a business loan is not the same as a mudra loan? Read on to learn more about how these two options are different.

Differences between Mudra Loans and Business Loans

As an owner, you must ensure enough cash is available in the business. While you might have to opt for a loan to ensure this, you must know all about the options available. This will help you make an informed decision. Here are the major variations between mudra loans and business loans.

  • Type: A Mudra loan is an unsecured loan. This means you do not need to offer any security to get this loan. As the government gives this scheme, the process to get this loan is very simple. Female borrowers are given a preference under this scheme, though all types of business owners can apply. When it comes to a business loan, it can be secured as well as unsecured based on the lender. The amount you want to get as a loan will also decide if the loan is secured or unsecured. Most lenders offer loans of up to Rs. 10 lakhs without any security. Any amount more than this would need you to provide security to get the loan.
  • Amount: When it comes to Mudra loans, the maximum amount you can get is Rs. 10 lakhs. These loans are given under three heads, Shishu, Tarun, and Kishor. No lender can offer more than Rs. 10 lakhs as a Mudra loan. On the other hand, there is no upper limit for a business loan. Many lenders offer even more than Rs. 5 crores as a business loan if you can give security, i.e., a loan against property. If you do not have any assets to pledge with the lender, you can get up to Rs. 10 lakhs as the loan amount.
  • Security: There is no need to offer security to get a Mudra loan. It is a scheme given by the government to help medium and small companies that do not have any security to offer. Through this loan, you can address any issues your venture has been facing. On the other hand, a business loan may or may not need security. This will depend on the lender, purpose, and the amount of the loan. Most lenders offer loans of up to Rs. 10 lakhs without any collateral. Any amount more than this may need you to offer security.
  • Interest Rate: The interest rate for a Mudra loan can vary across lenders. You can get this loan for as low as 8% per annum. It is one of the lowest interest rates for business loans. The reason for such a low-interest rate is that the scheme has government support. It aims to support small business owners. When it comes to a business loan, the interest rates can vary. The interest rate for an unsecured loan will be higher than a secured loan. For eg, Piramal Finance offers unsecured business loans starting from 17% per annum. It also offers secured business loans starting from 11.5% per annum.
  • Application: You can apply for a Mudra loan online and offline. This scheme is available with banks as well as NBFCs. So, you can identify a suitable lender and then decide to apply at their office or from the website. The same is the case with a business loan. You can apply for this loan online as well as offline from the website of the lender. You must submit copies of various papers to start the loan process.
  • Suitability: Mudra loans are meant for small and micro enterprises. Shopkeepers in urgent need of money can also apply for this loan. The maximum amount of Rs. 10 lakhs can optimally meet their needs. When it comes to business loans, they can be used by all types of businesses. Based on your profile and credit history, you can apply for any type of business loan. These high-value loans are great for medium and large businesses to fund their growth or invest in machinery.

Mudra loans are a good choice for a small-sized business to drive growth going forward. But it does have its limitations, and this is where a business loan comes into the picture. It can be a good choice if you need a higher amount for your business.

Hence, you need to learn all about the pros and cons of every loan type to make a decision. This is where Piramal Finance comes into the picture. They have many articles and blogs on various topics to help improve your skills in the world of finance. They also offer a range of business loans to help fund your growth.