How Is A Mudra Loan Different Than A Business Loan?

Mudra loan vs business loan, which one is best for you? Read to know the key differences so that you can make the best decision for yourself!

1 Dec,2022 09:46 IST 2387 Views
How Is A Mudra Loan Different Than A Business Loan?

Every business howsoever small or large needs money from time to time. This money is needed either for working capital expenses, to buy raw materials and machinery, to pay wages or even to rent a new office or premises, so as to expand the business.

But many small and medium-sized businesses often find themselves short on cash and, therefore, need to borrow money to keep their enterprise going.

Apart from a traditional business loan, businesses in India can also avail so-called MUDRA loans that have been designed especially for micro, small and medium enterprises (MSMEs).

What Is A Business Loan?

A business loan is a loan that is availed by businesses in order to meet short- or long-term financial needs of the enterprise. Business loans are extended by banks and non-banking finance companies.

An uncollateralized business loan is usually taken for a short tenure and for small amounts of money. At times, entrepreneurs can even go in for a collateralised business loan in which the plant machinery or some other movable or immovable property is pledged to get a more competitive rate of interest.

What Is A MUDRA Loan?

MUDRA is an acronym for Micro Units Development & Refinance Agency Ltd. It is a government-led initiative that is designed to help small businesses with financial aid.

The MUDRA scheme was announced by Prime Minister Narendra Modi in April 2015 and allows a business owner to avail a loan of up to Rs 10 lakh.

Difference Between MUDRA Scheme and A Business Loan

A typical business loan is different from a MUDRA scheme in several aspects. These include:


The eligibility criteria for a MUDRA loan is usually stricter than that for a business loan. A MUDRA loan can only be availed by small artisans, vendors and dealers of fruits and vegetables, shopkeepers and people in the business of agriculture and small manufacturers.

A business loan, on the other hand, can be availed by any business owner, without any restrictions on their line of business. Moreover, other eligibility criteria too are not very strict when it comes to a business loan.

Typically, to get a business loan, an enterprise must have been in business for at least two years, have a turnover of at least Rs 10 lakh and the owner should own an asset like a house or a business place. These criteria can, however, vary from lender to lender.

Interest Rate:

This is perhaps the most important factor when it comes to borrowing money. The interest rate for a MUDRA loan typically depends on the bank or non-banking financial institution from which the borrower is taking it. Business loan interest rates tend to be more competitive and sometimes significantly lower than for a MUDRA loan.
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For availing a MUDRA loan, the following documents are required:

● Identity proof – any of PAN card, driving license, voter ID card, Aadhaar card, Passport

● Residence proof – any of electricity bill, telephone bill, passport, voter ID card, Aadhaar card

● Passport size photographs

● Identity proof of business establishment

● Address proof of the business

● Rental agreement of the business premise, if rented

● SSI registration certificate

● If the small business loans are above Rs 2 lakh, then audited balance sheet of the previous two years along with sales tax and income tax forms

● Clearance certificate from pollution control board

● Partnership deed for partnership business

● For a company, Memorandum of Association and Articles of Association

For a business loan, on the other hand, the list of documents required is much smaller. A borrower will need the following documents for a business loan:

● PAN card

● Bank statement for the previous nine months

● Business and address proof

● Income tax returns of the previous two years

Having said all of this, the best thing about both the MUDRA loan as well as a business loan is that both can be applied for online and are also collateral-free. So, all the documents can be submitted online and one does not need to hypothecate any asset for either type of loan.


Both a business loan and a MUDRA loan have their own advantages and disadvantages. The type of loan that should be availed of, really depends on the borrower and their needs.

But if you do decide to go in for a business loan, make sure you approach a reputable lender like IIFL Finance, one of India’s top NBFCs. IIFL Finance allows for a smooth, hassle-free online application process and the loan money can be disbursed within days, so that business processes keep running smoothly.

Moreover, IIFL Finance offers the most competitive interest rates as also the best value-added services to its best clients.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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