Running a small business comes with its own set of hurdles. The toughest part often isn’t finding customers or dealing with competition it’s arranging funds when you need them most. That’s where loans step in. But many small traders are unsure whether to choose a regular business loan or the government-backed Mudra Loan. Both have different rules, benefits, and eligibility conditions, so understanding the difference can help you make a smarter choice.
What Is the Regular Business Loan?
A regular business loan is a common financing product offered by banks and NBFCs. It can be used for various needs such as working capital, business expansion, or purchasing equipment. The interest rates typically fall between 11% and 16%, depending on your credit score and lender policy. Repayment tenures range from 1 to 7 years. However, business loans often require strong financial documentation like IT returns, GST filings, and bank statements. For higher amounts, lenders may also ask for collateral as security.
What Exactly Is the Mudra Loan?
The Pradhan Mantri Mudra Yojana (PMMY) was introduced to help micro and small-scale businesses get easy access to funding. The loan amount can go up to ₹10 lakh and usually doesn’t require any collateral. There are three categories under the Mudra Loan scheme:
- Shishu Loan – Up to ₹50,000
- Kishor Loan – ₹50,000 to ₹5 lakh
- Tarun Loan – ₹5 lakh to ₹10 lakh
Interest rates are generally lower than those of traditional business loans, often ranging between 8% and 12%. Since it’s supported by the government, the documentation is lighter and the approval process quicker making it ideal for shopkeepers, self-employed individuals, and startup owners.
What Is the EMI Comparison Between Both Loans?
Let’s assume you take a ₹5 lakh loan for 5 years under both categories.
| Loan Type | Loan Amount | Interest Rate | Tenure | EMI (Approx) | Total Interest | Total Payment |
|---|---|---|---|---|---|---|
| Business Loan | ₹5,00,000 | 13% | 5 Years | ₹11,377 | ₹2,82,620 | ₹7,82,620 |
| Mudra Loan | ₹5,00,000 | 9% | 5 Years | ₹10,378 | ₹2,22,680 | ₹7,22,680 |
From the table, it’s clear that a Mudra Loan is more cost-effective. You save nearly ₹60,000 in interest compared to a regular business loan, and the EMI burden is also slightly lower.
What Is the Income or Salary Eligibility?
For business loans, banks generally check your turnover and profit. To qualify for larger amounts, you typically need a minimum annual turnover of ₹10–15 lakh. In contrast, Mudra Loans are designed for micro and small enterprises, where even small shopkeepers, street vendors, and self-employed individuals can apply. This wider eligibility is one of the main reasons for its popularity among new entrepreneurs.
What’s the Better Choice for You?
If you’re running a small shop, providing local services, or starting out as a self-employed worker, the Mudra Loan is a better option. It’s affordable, easier to access, and doesn’t require collateral. On the other hand, if you have a growing business with larger financial needs and good documentation, a regular business loan gives you more flexibility and higher loan amounts.
EMI Comparison Snapshot
For a ₹5 lakh loan, a Mudra Loan saves you around ₹60,000 in total interest with a lower EMI compared to a standard business loan. However, for higher funding requirements or longer-term needs, regular business loans offer more flexibility and customization.
Conclusion
Both Business Loans and Mudra Loans serve different purposes. The Mudra Loan is perfect for micro and small businesses looking for affordable funds with minimal paperwork and no collateral. Regular business loans are better suited for medium to large enterprises that require higher financing and can handle detailed documentation. If your requirement is within ₹5 lakh, the Mudra Loan remains the most cost-effective and practical choice.
Disclaimer
This article is meant for educational purposes only. Loan terms, eligibility, and interest rates vary across lenders and may change over time. Please verify the latest details from official bank or government sources before applying.
