Pradhan Mantri Mudra Loan vs Other Business Loans

Access to the appropriate business loan is one of the greatest challenges that small business owners in India experience. Some entrepreneurs cannot easily secure funds as the bank requires a lot of money, the interest rate is high or they may not have collateral. It is in this respect that the Pradhan Mantri Mudra loan comes into picture. But what is its comparison with other business loan schemes? We will look into the eligibility, the benefits and the comparison of the two to enable you to decide on which one to take.

What Is Pradhan Mantri Mudra Loan and How Does It Work?

Pradhan Mantri Mudra loan is one of the initiatives of the Pradhan Mantri Mudra Yojana (PMMY), which was introduced in 2015 by the Government of India. The primary aim is that it gives loans to micro and small entrepreneurs without collateral since most traditional banks tend to ignore them.

The Mudra loan will be separated into three groups:

  • Shishu: Loans up to 50,000 rupees to those who are starting up or beginners.
  • Kishore: Growing business loans of 50001 to 5 lakh.
  • Tarun: Small business loans 5 lakh to 10 lakh to existing small businesses willing to grow.

The loan is a financial support by the government to encourage small-scale entrepreneurship in India. It is more inclusive and financially empowering as opposed to the traditional business loans.

What Is Mudra Loan Eligibility 2025?

Prior to the application, you need to be aware of Mudra loan eligibility 2025. The qualification requirements are easy and targeted at small business owners:

    1. Age: The applicants ought to be aged between 18 and 65 years.
    2. Type of business: It can be applied by business startups, traders, small manufacturers, service providers, shopkeepers and transport businesses.
  • Documents required:
  • Project report or business plan.
  • Identity evidence (Aadhaar, PAN, Voter ID).
  • Proof of address.
  • Proof of business activity.

This easiness enables Mudra loans to be available to first time entrepreneurs who might not possess a good financial background.

What Are the Benefits of Mudra Loan for Small Businesses?

Mudra loan is one of the most popular small businesses loan schemes in India due to the benefits of Mudra loan. Some key advantages are:

  • No collateral needed -Unlike the traditional loans, Mudra loans are collateral-free.
  • Low-interest rates -Interest rates are cheap as opposed to commercial business loans.
  • Flexible repayment– Borrowers have the option to pay at their own schedules depending on the cash flow in the business.
  • Government backing– Because it is supported by the Indian government, it provides borrowers with additional confidence.
  • Financial inclusion – Assists micro and small businesses, particularly women entrepreneurs, to have access to formal banking.

This scheme is usually the best option to small traders or startups that want to borrow their first loan.

Mudra Loan Vs Business Loan: Which One Should You Choose?

In the comparison, Mudra Loan vs Business Loan, the variations are evident.

  • Loan Amount: Mudra loans have a limit of 10 lakh and business loans have no limits.
  • Interest Rates: Mudra loans typically are offered at reduced rates or government controlled rates. Conventional business loans can be charged at a premium based on the bank and the credit history of the borrower.
  • Eligibility: Mudra loans are more easily eligible with little documentation whereas business loans need credit history, collateral and income evidence.
  • Flexibility in Repayment: Mudra loans usually have less strict repayment terms than commercial loans.

Mudra loan is the right option when you are a small business owner with a small capital requirement. Use a business loan when you need more funds and you are able to pledge a security.

How Do Small Business Loan Schemes in India Compare With Mudra Loan?

There are various small business lending programs in India that are provided in India. Some popular ones include:

  • SIDBI Loans– To develop MSMEs.
  • Stand-Up India Scheme- Women and SC/ST entrepreneurs.
  • NABARD Loans- Agricultural and rural-based businesses.
  • CGTMSE Scheme – To small businesses without collateral loans.

While these schemes are beneficial, they often come with specific eligibility conditions. In comparison, the Pradhan Mantri mudra loan is simpler, faster, and widely accessible. This makes it the most preferred scheme among micro and small entrepreneurs.

What Is PMMY Loan Comparison With Other Business Loans?

A PMMY loan comparison brings out the point of difference between Mudra loans:

  • Processing Speed: Mudra loans tend to be processed quickly as opposed to commercial business loans.
  • Collateral Requirement: Collateral is not required in Mudra Loans but most business loans have collateral.
  • Loan Amount: PMMY will provide loans of up to 10 lakh, whereas the traditional business loans can be more than 1 crore.
  • Target Audience: Mudra loans are structured to serve the micro-entrepreneurs whereas the commercial loans serve the medium and large enterprises.

This comparison demonstrates that Pradhan Mantri Mudra loan is more suitable to small businesses, whereas the traditional loans are more appropriate to the large financial requirements.

Pradhan Mantri Mudra Loan vs Other Business Loans: Which Is Better for You?

The option will be based on your business needs:

  • The Pradhan Mantri Mudra loan provides easy, non-collateralized assistance within a short period of time, in case you are new or operating a small business.
  • Traditional loans with the banks and NBFCs can be more appropriate in case your business needs increased funding.

When you assess your financial objectives, repayment ability and loan needs, you are able to choose the most appropriate loan option to your business.

Conclusion: How Can Finline Help You Get the Best Loan?

It may be difficult to decide between the Pradhan Mantri Mudra loan and other business loans, but the best thing is to have the right documents and reports. That’s where Finline comes in.

Finline assists entrepreneurs to prepare bankable project reports which enhances chances of loan approval. Regardless of whether you are applying to a Mudra loan or a conventional business loan, Finline makes sure that your project report is distinctive.

 In case you are now willing to expand your business, then Finline is the one you can rely on to make professional project reports and get the loan that suits you. Check out our pricing plans and see which one fits your business needs best.

Need a project report for your business? Create now!

FAQs

The main difference is that a Mudra Loan under PMMY is collateral-free and designed for micro and small businesses with loan amounts up to ₹10 lakh. Other business loans often require collateral, stricter eligibility, and can provide larger funding—sometimes going up to crores.

Yes, the Pradhan Mantri Mudra Loan is a great option for startups, especially those beginning on a small scale. It helps new entrepreneurs get funds without security, has flexible eligibility, and comes with government support. For bigger startups needing higher funds, business loans may be a better choice.

Mudra Loan interest rates usually range between 8% and 12%, depending on the bank and applicant profile. Other business loans, especially from private banks or NBFCs, can charge higher—often between 12% and 20%. This makes Mudra Loans more affordable for small business owners.

Yes, you can take both, provided you meet the bank’s eligibility and repayment capacity. Many entrepreneurs start with a Mudra Loan to build credit history and later apply for a larger business loan. However, banks will assess your income, repayment track, and financial documents before approving both.

For most small businesses, the Pradhan Mantri Mudra Loan is one of the best schemes because it requires no collateral and has simple documentation. Other good options include CGTMSE loans, Stand-Up India scheme, and SIDBI loans. The best choice depends on your funding requirement, business size, and repayment capacity.