How to Get a MUDRA Loan in 2026: The Honest, Step-by-Step Guide

You have a business idea. You know what you want to do. The one thing standing between you and starting is money. If this is where you are, MUDRA Yojana exists exactly for you — and after reading this guide, you will know precisely how to access it.

What is MUDRA Yojana — and why does it matter for small business owners?

Pradhan Mantri MUDRA Yojana (PMMY) was launched on 8 April 2015 with a single purpose: to bring India’s unfunded small business owners into the formal credit system. Before PMMY, if you ran a small kirana shop, a tailoring unit, or a mobile repair business, getting a bank loan was practically impossible. You had no collateral, no credit history, and no one to guarantee your loan. Banks simply said no.

MUDRA changed that. It stands for Micro Units Development and Refinance Agency. It is not a bank — it is a refinancing institution that provides funds to banks and NBFCs, who then lend to small businesses under the PMMY framework. The loans are collateral-free, the documentation is simpler than a regular business loan, and the interest rates are among the lowest available for micro enterprises.

The scale of PMMY is extraordinary. As of early 2026, the scheme has disbursed over Rs 32.40 lakh crore across more than 52 crore loan accounts since inception — making it one of the largest financial inclusion programmes in the world.

The 2024–25 Union Budget made the scheme even more powerful: the maximum loan limit was raised to Rs 20 lakh under a new ‘Tarun Plus’ category, and digital processing through the JanSamarth portal was strengthened. If you have not explored MUDRA yet, 2026 is the year to do it.

Who can apply for a MUDRA loan?

MUDRA eligibility is deliberately broad. The scheme is designed to include people who would normally be excluded from formal banking. Here is the baseline:

• You must be an Indian citizen
• Age between 18 and 65 years
• You must be running, or planning to start, a non-farm business
• Business should be in manufacturing, trading, services, or allied agriculture sectors
• You must not be a defaulter with any bank or financial institution
• No minimum income threshold — but you must demonstrate repayment capacity

What ‘non-farm’ means in practice: pure crop loans and land-related agriculture (irrigation, wells, canals) are not covered. However, a wide range of agriculture-linked activities are — poultry, dairy, beekeeping, fisheries, food processing, agri clinics, and agribusiness centres all qualify.

What type of business entities can apply:

• Individual proprietors
• Partnership firms
• Sole traders and vendors
• MSMEs and small manufacturers
• Women entrepreneurs (with additional priority in some schemes)
• SC/ST/OBC entrepreneurs (may get priority processing and lower rates)

Who is NOT eligible:

• Businesses in crop cultivation or direct agricultural activities
• Medium or large enterprises (turnover exceeds MSME thresholds)
• Anyone with an active loan default or NPA with any lender
• Non-Indian entities
• Businesses that are not income-generating in nature

The 4 MUDRA loan categories explained

MUDRA loans are structured in four tiers, each matching a different stage of business development. Choosing the right category is one of the most important decisions you will make — applying for the wrong tier is a common reason for rejection.

* Tarun Plus requires prior successful repayment of a Tarun loan. Interest rates are indicative — actual rates vary by lender and your credit profile.

Shishu — up to Rs 50,000

This is for you if you are starting from scratch. A first-time vendor, a home-based tailoring business, a tea stall, a small grocery shop — Shishu covers the initial capital you need to get going. The documentation is minimal. Some banks now process Shishu loans in as little as 10 minutes if your Aadhaar is linked to your bank account.

Real example: Ramesh from Gorakhpur used a Rs 40,000 Shishu loan to buy a commercial-grade blender, a display counter, and initial stock for his fruit juice stall. He repaid the loan in 14 months and is now applying for a Kishore loan to open a second stall.

Kishore — Rs 50,001 to Rs 5 lakh

The Kishore category is for businesses that have already started but need capital to grow — more stock, better equipment, a larger workspace. You need to demonstrate that the business is running and generating some income. Bank statements showing regular business transactions help significantly here.

This is currently the fastest-growing tier under PMMY. Kishore loans now account for 44.7% of all MUDRA disbursals in FY 2024–25 — up from just 5.9% in 2016. This reflects a maturing small business ecosystem where entrepreneurs are graduating from survival-mode to growth-mode.

Tarun — Rs 5 lakh to Rs 10 lakh

Tarun is for established micro-enterprises that want to scale meaningfully — buying machinery, expanding a manufacturing unit, opening a second outlet. At this level, banks will expect a proper business plan and will scrutinise your financial records more carefully. A clean 2–3 year banking history and Udyam registration will significantly improve your chances.

Tarun Plus — Rs 10 lakh to Rs 20 lakh (new in 2024–25)

This is the newest addition to the MUDRA framework, introduced via the 2024–25 Union Budget. The ceiling was raised from Rs 10 lakh to Rs 20 lakh, but with one important condition: Tarun Plus is available only to entrepreneurs who have already taken and successfully repaid a Tarun loan.

If you have never borrowed under MUDRA before, you cannot directly apply for Tarun Plus. You must go through the graduation pathway — Shishu or Kishore → Tarun → Tarun Plus. Think of it as the scheme rewarding proven borrowers.

What can you use a MUDRA loan for?

MUDRA loans cover a wide range of business activities. Here is the complete picture:

Transport vehicles

Purchase of auto-rickshaws, e-rickshaws, 3-wheelers, small goods transport vehicles, passenger taxis, and similar commercial vehicles used for income generation.

Community, social and personal service activities

Salons, beauty parlours, boutiques, dry cleaning units, cycle/motorcycle repair shops, tailoring units, dyeing units — the full range of service-based micro businesses.

Food processing

Papad making, pickle manufacturing, jam/jelly making, bakery units, small food processing plants, agarbatti manufacturing, food stalls and small restaurants.

Textile products/garments

Hand looms, power looms, knitwear units, embroidery units, garment manufacture and alteration.

Business loans for traders and shopkeepers

Working capital and stock purchase for retail shops, kirana stores, mobile shops, electronics shops, and other trading businesses.

Equipment finance for micro units

Buying machinery and equipment to set up a manufacturing micro unit — grinding machines, lathes, sewing machines, packaging machines, etc.

Agriculture-allied activities

Poultry, dairy, fisheries (pisciculture), beekeeping, livestock rearing, grading and sorting, agro-processing — all covered as long as the activity is income-generating.

Documents you will need — a complete checklist

Document issues are the single biggest reason for MUDRA loan delays and rejections. Prepare these before you walk into a bank — not after.

The most important document: your business plan for Kishore and Tarun

For Shishu loans, a business plan is not strictly required — your Aadhaar, a photograph, and basic business proof are often enough. For Kishore and Tarun, banks will expect a written business plan. This does not need to be a 40-page MBA document. A clear, honest, 2-page plan covering these points is sufficient:

• What your business does and what you sell
• Where you operate (location, market size)
• How much money are you asking for, and exactly what will you spend it on
• Your estimated monthly revenue and expenses
• How you plan to repay the loan — how many months, from which income

Banks do not expect perfection. They want to see that you have thought about the business seriously and have a realistic idea of your cash flow. A handwritten plan on two sides of a sheet of paper, if it is honest and specific, can be more persuasive than a glossy printed document with unrealistic projections.

How to apply

You have two routes: online through official government portals, or offline by walking into a bank. Both are legitimate. Which one you choose depends on your comfort with digital processes and the size of your loan.

Route 1: Online through JanSamarth or UdyamiMitra

Step 1 — Udyam registration (strongly recommended first)

Before applying, register your business on the Udyam portal (udyamregistration.gov.in). This is free and gives you a Udyam Registration Certificate — a document that banks look favourably on because it means the government has formally recognised your business. Without Udyam registration, your application is not invalid, but with it, you signal seriousness.

Step 2 — Go to udyamimitra.in or jansamarth.in

These are the two official government portals for MUDRA loan applications. JanSamarth was upgraded in 2025 and is now the cleaner interface. UdyamiMitra is older but widely used.

Step 3 — Register with your mobile number

You will receive an OTP. Once logged in, you fill in your personal details, business details, and select the loan category (Shishu, Kishore, Tarun, or Tarun Plus).

Step 4 — Upload your documents

Upload Aadhaar, PAN, a recent photograph, business proof, and bank statements. For Kishore and Tarun, upload your business plan.

Step 5 — Choose your lender

The portal will show you banks and NBFCs available in your area. You can compare rates and select the one that suits you. Public sector banks (SBI, Bank of Baroda, Canara Bank) typically offer the lowest rates. NBFCs offer faster processing but at higher rates.

Step 6 — In-principle approval and branch visit

For larger loans (Kishore and above), after getting online in-principle approval, you will typically need to visit the selected branch to complete verification and sign the loan agreement. For Shishu, some banks now do fully digital disbursals.

Route 2: Offline through your nearest bank branch

This is simpler for people who are not comfortable with online portals, and often faster for Shishu loans.

• Visit any branch of a public sector bank (SBI, Bank of Baroda, Canara, PNB, Bank of Maharashtra are the most active)
• Ask specifically for ‘PM MUDRA Yojana’ — not a general business loan
• Collect the Kishore/Tarun application form (available free at the branch)
• Fill in the form, attach all documents, and submit
• The bank’s loan officer will review your application and may call you for a discussion
• Approval typically takes 1–3 weeks for Kishore, 3–6 weeks for Tarun

Which bank or lender should you choose?

Not all lenders are equally accessible or equally cheap. Here is a practical comparison of your main options:

Interest rates are indicative and subject to change. Visit the branch or lender website for current rates before applying.

One practical tip that most people miss: if you already have a current or savings account with a bank, start there. Banks offer better terms to existing customers because they can already see your cash flow. A 2–3 year banking relationship with regular transactions is more persuasive than any document you can produce.

Interest rates: what to actually expect

There is no single MUDRA interest rate. The government does not fix rates — it mandates that MUDRA loans be offered at ‘reasonable’ rates, and leaves pricing to individual lenders within their own credit policies.

Here is what you can realistically expect in 2026:

• Shishu (up to Rs 50,000): 8.85%–10% per annum at most public sector banks
• Kishore (Rs 50,001–5 lakh): 9%–12% per annum, depending on lender and CIBIL score
• Tarun (Rs 5 lakh–10 lakh): 9.5%–12% per annum
• Tarun Plus (Rs 10 lakh–20 lakh): 10%–12% per annum
• NBFCs and MFIs: 14%–24% per annum (significantly higher, but approval rates are better)

Two things that meaningfully reduce your interest rate: a good CIBIL score (700+) and an existing banking relationship with the lender. Two things that raise it: weak credit history and applying through an NBFC instead of a PSB.

The good news: even at 12%, a MUDRA loan is significantly cheaper than borrowing from a moneylender (who charges 24–60% in most small towns). For anyone currently using informal credit, MUDRA represents a genuine upgrade.

Why MUDRA applications get rejected — and how to avoid it

Rejection is more common than people expect, especially for Kishore and Tarun applications. These are the real reasons — not the official ones, but what actually happens on the ground:

1. Mismatched documents

Your name on Aadhaar says ‘Suresh Kumar Gupta’, but your bank account says ‘S.K. Gupta’. The lender cannot complete KYC verification. Rejection. Fix this before you apply — it can take 2–4 weeks to correct name mismatches through Aadhaar updates.

2. No Udyam registration

Banks are not legally required to demand Udyam registration for MUDRA loans, but in practice, many loan officers use its absence as a reason to deprioritise your application. Register at udyamregistration.gov.in — it is free and takes 15 minutes.

3. Low or no CIBIL score

First-time borrowers with no credit history often find their applications stuck or rejected at the Kishore and Tarun level. If you have never borrowed formally, your CIBIL score is -1 (no history). Some banks are comfortable with this for Shishu; fewer are for larger amounts. The solution: start with a small loan or a credit card to build history first.

4. Poor cash flow in bank statements

Loan officers look at your last 6 months of bank statements. If your account shows low or erratic transactions — lots of zeros, frequent bounced cheques, overdrafts — they conclude your business is not generating reliable income. If your business is cash-heavy and not reflected in your bank account, start routing transactions through it for at least 3 months before applying.

5. Vague or unrealistic business plan

For Kishore and Tarun, a business plan that says ‘I will earn Rs 1 lakh per month from Day 1’ with no explanation of how is immediately suspect. Banks have seen thousands of business plans. They know what is realistic. Show modest, credible projections — even if your actual ambitions are larger.

6. Applying for the wrong category

A new business applying for Tarun (Rs 5–10 lakh) when they should be applying for Shishu (up to Rs 50,000) is a mismatch between what you are asking for and what the bank can validate. Be honest about your stage of business.

7. Previous loan default anywhere

Even a small default on a personal loan, credit card, or any previous loan with any lender will flag in CIBIL and can result in rejection. If you have a default, resolve it before applying — get a NOC from the lender if the loan is closed.

8. Applying to multiple banks simultaneously

Every loan application creates a ‘hard inquiry’ on your CIBIL report. Multiple simultaneous applications signal desperation and lower your score. Apply to one lender at a time, wait for a decision, and then move to the next if rejected.

What to do if your application is rejected

Rejection is not permanent. Here is a practical path forward:

• Ask the bank for the written reason for rejection — they are required to provide this
• If it is a documentation issue, fix it and reapply at the same branch
• If it is a credit score issue, spend 3–6 months building your score before reapplying
• If the loan officer seemed reluctant without a clear reason, try a different branch of the same bank, or a different lender entirely
• Consider starting with a smaller amount (Shishu) to establish a MUDRA credit history, then graduate to Kishore
• Approach your nearest Common Service Centre (CSC) or MSME Development Centre for free assistance with your application

Special provisions: women, SC/ST entrepreneurs, and priority sectors

MUDRA is not a uniform scheme — certain groups receive additional benefits that most people do not know about:

Women entrepreneurs

Women applicants are given priority processing at most public sector banks. Some lenders offer a 0.25% reduction in interest rate for women. If you are a woman entrepreneur, specifically mention this when you apply and ask whether the bank offers preferential terms.

SC/ST and OBC entrepreneurs

Reserved category applicants may receive priority processing, lower interest rate spreads, and can also combine their MUDRA application with state-level schemes for SC/ST entrepreneurs. Bring your caste certificate when you apply.

Minority communities

MUDRA has been specifically highlighted as a tool for the financial inclusion of minority communities. Some states have state-level guarantee schemes that complement MUDRA for minority applicants.

Priority sectors

The 2025 Union Budget added a new sector to MUDRA’s coverage: homestay properties for tourism. If you run or plan to run a homestay, you are now eligible for MUDRA financing — a significant new opportunity in tourism-heavy states like Himachal Pradesh, Uttarakhand, Kerala, Rajasthan, and the Northeast.

The MUDRA Card: flexible working capital access

When you receive a MUDRA loan, you are also eligible for a MUDRA Card — a RuPay debit card linked to your working capital credit limit. Here is how it works:

• Available under Shishu, Kishore, and Tarun categories
• Works like a credit line: you draw from it only when you need it, and pay interest only on what you draw
• Can be used at any ATM or PoS terminal — useful for purchasing stock, paying suppliers, and managing day-to-day expenses
• Credit limit tied to your approved working capital portion of the loan
• Reduces the need to withdraw the full loan amount on Day 1 and pay interest on the entire sum

Most borrowers are not told about the MUDRA Card. Ask your bank specifically — it is a genuinely useful product for businesses with fluctuating working capital needs.

What happens after your loan is approved

Once your MUDRA loan is approved, the amount is disbursed into your bank account. A few things to keep in mind:

Use the money only for the stated purpose

The bank may ask for invoices or utilisation certificates — especially for Tarun and Tarun Plus. If your loan was for buying machinery, use it to buy machinery. Using MUDRA loan funds for personal expenses is a breach of loan terms and can create problems on your next application.

Repayment begins immediately

Repayment starts from the month of disbursement (or the following month, depending on the lender). Set up an auto-debit if possible. A missed EMI hits your CIBIL score and affects your ability to graduate to the next MUDRA tier.

Build your banking history

Keep routing your business income through the bank account linked to the loan. Banks use this data for your next loan application. A clean 12-month repayment record with active business transactions in the account puts you in an excellent position for a larger loan.

Register for Udyam if you have not already

Udyam registration (udyamregistration.gov.in) is free and unlocks access to multiple other government schemes — PMEGP, CGTMSE, CLCSS equipment upgrade scheme, and state-level MSME subsidies. Many of these stack on top of MUDRA financing.

If MUDRA does not work for you, what else is available?

MUDRA is not the only option. If your application is rejected or the amount is insufficient, here are the other government-backed schemes to explore:

PMEGP — Prime Minister’s Employment Generation Programme

Larger loans (up to Rs 50 lakh for manufacturing, Rs 20 lakh for services) with an actual subsidy of 15–35% of the project cost. More paperwork, but real free money in the form of the subsidy margin. Apply for the PMEGP scheme through your nearest KVIC office or DIC (District Industries Centre).

Startup India seed fund

If you are a registered startup (DPIIT recognition), the Startup India Seed Fund Scheme provides up to Rs 20 lakh as seed funding and up to Rs 50 lakh as grants. Different eligibility profile from MUDRA — more suitable for scalable, tech-enabled businesses.

NABARD schemes

If your business is in agriculture-allied sectors (dairy, poultry, fisheries, food processing, cold storage), NABARD has specialised refinancing schemes with attractive terms. Approach your nearest NABARD district office — the staff are helpful and under-utilised.

State government schemes

Every Indian state has its own MSME support scheme. UP has UP Mukhyamantri Yuva Swarozgar Yojana, Tamil Nadu has TANSIDCO, and Maharashtra has various MAVIM-linked schemes for women. These often have lower competition than central schemes because awareness is lower.

More Articles on Funding:

• Best Business Loans in India
• How to Get a Business Loan from the CGTMSE Scheme
• What is a Term Loan & How to Get?
• Best Personal Loan Apps in India for Instant Cash

Frequently asked questions

Can I apply for MUDRA without GST registration?

Yes. GST registration is not a mandatory requirement for MUDRA loans. However, if your business turnover requires GST registration by law (above Rs 20 lakh for services, Rs 40 lakh for goods), having it demonstrates business legitimacy and helps your application.

Can I get a MUDRA loan for a new business with no income yet?

Yes — especially under Shishu. Banks understand that Shishu borrowers are often starting from zero. Your business plan and the viability of the idea matter more than existing income for small amounts. For Kishore and above, existing business income is expected.

Can I take a second MUDRA loan?

Yes. You can take a second MUDRA loan — either at a higher tier (graduating from Shishu to Kishore) or for a new business purpose. The key requirement is that your existing MUDRA loan is in good standing with no defaults.

How long does it take to get a MUDRA loan?

Shishu: 1–10 days at most public sector banks (some claim same-day disbursals for Aadhaar-linked accounts). Kishore: 1–4 weeks. Tarun and Tarun Plus: 3–8 weeks, depending on the complexity of your business and documentation.

Is MUDRA the same as a subsidy?

No. MUDRA provides collateral-free loans at reasonable interest rates — not free money. You must repay the principal plus interest. The benefit is access to formal credit at lower rates than informal lenders, without needing collateral.

Can a salaried person apply for MUDRA?

Yes — if they are simultaneously running a small business. Eligibility is based on the business activity, not your employment status. However, you cannot use a MUDRA loan for personal expenses or to supplement your salary.

What is CGFMU, and why does it matter?

CGFMU (Credit Guarantee Fund for Micro Units) provides a guarantee to lenders on MUDRA loans up to Rs 20 lakh. This means if you default, the government partially covers the bank’s loss, which is why banks are willing to lend without collateral. As a borrower, you do not pay separately for this guarantee.

The editor’s take: Is MUDRA worth it?

I have seen too many people in small Indian towns go to moneylenders at 3–5% per month when a MUDRA loan at 9–10% per year was available to them. The gap in awareness is staggering.

MUDRA is not perfect. The application process can be frustrating; some bank officers are unhelpful, and rejection is common for first-time applicants. But the fundamentals are strong: collateral-free, at reasonable rates, backed by a government guarantee, with a pathway to progressively larger loans as you demonstrate creditworthiness.

The biggest mistake I see aspiring entrepreneurs make is waiting — waiting until the business is ‘more established’, waiting until documentation is ‘more complete’, waiting until they feel more confident. That wait is expensive, because every month you spend borrowing informally is a month you pay 3–5x the interest you would under MUDRA.

Start with Shishu if that is where you are. Repay on time. Build your banking history. Graduate to Kishore, then Tarun. This is a proven pathway that has worked for millions of Indian entrepreneurs.

The only question is whether you start today.

Rupak Chakrabarty

Rupak Chakrabarty is the Editor at NextWhatBusiness and a business strategy analyst with over two decades of hands-on experience advising small and mid-sized businesses. His work focuses on entrepreneurship, franchise models, MSME funding, and business planning, with an emphasis on practical decision-making over theory. When not writing or consulting, he enjoys adventure sports, speed, and exploring stories behind businesses.