Mudra loan for startups: limits, eligibility, guarantee

Most startup funding advice is about equity. For a young business with paying customers and a small, specific need, such as stock, a machine or a vehicle, a bank loan can be cheaper than selling shares. The government's best-known small loan scheme is the Pradhan Mantri MUDRA Yojana.

This explainer covers the loan bands and limits, who is eligible, how startups fit, the guarantee behind the loans and how Mudra compares with the startup credit guarantee. It is not financial advice.

What is a Mudra loan?

A Mudra loan is a business loan without collateral of up to Rs 20 lakh made under the Pradhan Mantri MUDRA Yojana, launched on 8 April 2015. Banks, regional rural banks, small finance banks, NBFCs and microfinance institutions make the loans; MUDRA Ltd provides refinance support to those lenders.

The scheme is large. A PIB backgrounder of 8 April 2026 says that, as of 27 March 2026, PMMY had disbursed Rs 40.07 lakh crore across over 57 crore loan accounts, and that more than 12 crore accounts belong to new entrepreneurs.

For 2024-25, the same backgrounder says new entrepreneurs held 21% of loan accounts and 30.09% of the amount disbursed, and women held 59.81% of loan accounts. Uttar Pradesh recorded the highest disbursement that year, at Rs 58,111 crore.

What are the Mudra loan categories and limits?

Mudra loans come in four bands by size: Shishu up to Rs 50,000, Kishor above Rs 50,000 up to Rs 5 lakh, Tarun above Rs 5 lakh up to Rs 10 lakh, and Tarun Plus above Rs 10 lakh up to Rs 20 lakh. Tarun Plus is open only to borrowers who repaid a Tarun loan.

Band	Loan size	Meant for
Shishu	Up to Rs 50,000	Very small or new businesses
Kishor (often spelt Kishore)	Above Rs 50,000 to Rs 5 lakh	New or running businesses needing working capital or modest expansion
Tarun	Above Rs 5 lakh to Rs 10 lakh	Growing businesses buying equipment or adding capacity
Tarun Plus	Above Rs 10 lakh to Rs 20 lakh	Repeat borrowers who repaid a Tarun loan

The bands and their purposes come from the PIB backgrounder, which says Tarun Plus started in 2024. Interest rates aren't fixed by the scheme: MUDRA's FAQ says lending rates follow RBI guidelines and each lender's own terms.

Who is eligible for a Mudra loan?

Any Indian citizen with a business plan for a non-farm, income-generating activity in manufacturing, processing, trading or services, with a credit need of up to Rs 20 lakh, can apply to a bank, MFI or NBFC. That is the wording of MUDRA's own FAQ. The lender decides eligibility under its own norms.

The two official sources read differently on companies. MUDRA's FAQ lists individuals, proprietary concerns, partnership firms and private limited companies among eligible applicants. The PIB backgrounder describes borrowers as non-corporate, non-farm micro and small enterprises. A startup run as a private limited company should confirm with the lender before applying.

The money can go to business loans for traders and service businesses, working capital through a MUDRA card, equipment, commercial vehicles and agri-allied activities such as dairy or food processing, as the backgrounder lists.

Can startups use a Mudra loan?

Yes, when the need fits the scheme: a business with income, a specific use such as stock, equipment or working capital, and an amount within Rs 20 lakh. A pre-revenue startup that needs risk capital is a poor fit, because a loan has to be repaid from cash flow, whatever happens to the product.

Mudra also doesn't depend on DPIIT recognition, unlike CGSS and the Seed Fund Scheme, so it stays open to a small business that isn't a recognised startup. Government funding for startups in India maps the schemes that do need recognition, such as the Seed Fund Scheme.

A Mudra loan funds a business that already earns; it doesn't fund the search for one.

How does the CGFMU guarantee work?

The Credit Guarantee Fund for Micro Units, a government trust run by NCGTC, guarantees part of a lender's loss on micro loans up to Rs 20 lakh. For loans sanctioned since FY 2020-21, the lender bears a first loss of 3% of the amount in default, and the fund covers 75% of the amount in default.

Total payouts are capped at 15% of the lender's crystallised portfolio, according to the NCGTC FAQ updated 18 February 2025. Loans above Rs 10 lakh qualify only for borrowers who repaid a Tarun loan, in line with the Tarun Plus rule.

The guarantee has a price. The standard fee is 1% a year of the sanctioned amount in the base year, then charged on the outstanding amount. The FAQ lets the lender recover it from the borrower, so ask whether the fee is added to your cost.

How does Mudra compare with CGSS for startups?

Mudra and the Credit Guarantee Scheme for Startups both let lenders lend without collateral, but they serve different borrowers. Mudra reaches any eligible micro enterprise up to Rs 20 lakh. CGSS covers loans to DPIIT-recognised startups up to Rs 20 crore per borrower, from banks, rated NBFCs and SEBI-registered AIFs.

	Mudra (PMMY with CGFMU)	CGSS
Who borrows	Eligible non-farm micro enterprises	DPIIT-recognised startups
Largest loan covered	Rs 20 lakh	Rs 20 crore per borrower
Guarantee	75% of default, after a 3% first loss, within a 15% portfolio cap	85% of default up to Rs 10 crore; 75% above
Lenders	Banks, RRBs, small finance banks, NBFCs, MFIs	Banks, NBFCs rated BBB or above with Rs 100 crore net worth, SEBI-registered AIFs
Standard yearly fee	1% of sanctioned amount in the base year	2%; 1.5% for North East units and women entrepreneurs; 1% in 27 champion sectors

The CGSS terms come from notification S.O. 2046(E) of 8 May 2025, as reproduced by TaxGuru. How CGSS works covers it in detail, and venture debt in India covers loans for startups that have raised equity.

How do you apply for a Mudra loan?

Apply to a member lender, such as your bank's branch, an NBFC or an MFI, or online through the JanSamarth portal, which the PIB backgrounder says covers 14 credit-linked government schemes, including PMMY, and over 200 lenders. The lender asks for its own documents and decides the loan.

Bring a short business plan showing what the loan buys and how it is repaid, recent bank statements, and identity and business registration documents. Compare the interest rate and any guarantee fee across two or three lenders before you sign.

Questions

What is the maximum Mudra loan amount?

Rs 20 lakh. Shishu loans go up to Rs 50,000, Kishor loans above that up to Rs 5 lakh, Tarun loans above Rs 5 lakh up to Rs 10 lakh, and Tarun Plus loans above Rs 10 lakh up to Rs 20 lakh, only for borrowers who repaid a Tarun loan.

Can a startup get a Mudra loan?

Yes, if it runs a non-farm, income-generating business with a credit need of up to Rs 20 lakh and meets the lender's norms. MUDRA's FAQ lists private limited companies among eligible applicants, though a PIB backgrounder describes borrowers as non-corporate, so confirm with the lender first.

Do Mudra loans need collateral?

No. PMMY loans need no collateral, and the Credit Guarantee Fund for Micro Units, run by NCGTC, guarantees part of lenders' losses so they can lend without security. The lender may pass the guarantee fee on to the borrower, so ask about it.

What is the difference between Mudra and CGSS?

Mudra loans reach any eligible micro enterprise up to Rs 20 lakh, backed by CGFMU. CGSS covers loans to DPIIT-recognised startups up to Rs 20 crore per borrower from banks, rated NBFCs and SEBI-registered AIFs, with 85% cover up to Rs 10 crore and 75% above.

Sources: PIB, 11 Years of Pradhan Mantri MUDRA Yojana, 8 Apr 2026 · MUDRA, Frequently Asked Questions, checked 11 Nov 2026 · NCGTC, FAQ: Credit Guarantee Fund for Micro Units, updated 18 Feb 2025 · DPIIT notification S.O. 2046(E), Credit Guarantee Scheme for Startups, 8 May 2025 (as reproduced by TaxGuru)

For more on how startup funding works in India, read the MyStartupValley blog or visit mystartupvalley.com.