MUDRA, PMEGP or a plain term loan: which one you're actually eligible for

Ask around about funding and you will hear the same three names in the same breath: MUDRA, PMEGP, and "just take a loan from the bank". They get discussed as if they were three prices for the same thing. They are not. They are three different instruments, with different gatekeepers, and the one that fits you is usually decided before you apply — by facts about your business you already know.

They are not alternatives to each other

• MUDRA (PMMY) is a loan, given by your bank, NBFC or MFI, with a government guarantee behind it. MUDRA does not lend to you directly and there is no MUDRA office that sanctions your file.
• PMEGP is a subsidy on the cost of setting up a new unit, routed through KVIC, the state KVIB or the District Industries Centre, with a bank loan for the rest.
• A term or working-capital loan is the bank's own product. Its interesting feature for a small business is CGTMSE cover, which is what lets a bank lend without collateral.

Read that list again and the sorting rule falls out of it. If the unit already exists, PMEGP is gone. If you have never borrowed and have no books, the bank's own product is the hardest of the three. Everything after this is detail.

MUDRA: for a business that already earns

MUDRA loans are for non-farm income-generating activity — manufacturing, trading, services — and come in tiers: Shishu up to ₹50,000, Kishore from ₹50,000 to ₹5 lakh, Tarun from ₹5 lakh to ₹10 lakh, and Tarun Plus up to ₹20 lakh for borrowers who have already repaid a Tarun loan. They are collateral-free.

What actually decides a MUDRA application is not the scheme. It is your bank's credit view of you: how your current account has behaved for the last 12 months, whether your declared turnover and your bank credits agree, and how any existing loan or gold loan has been serviced. The scheme removes the collateral requirement. It does not remove underwriting.

The most common reason a MUDRA file stalls is that the business runs almost entirely in cash, so there is nothing in the account to underwrite. If that is you, the fix is not a better application — it is six months of routing receipts through the account first.

PMEGP: only for a unit that does not exist yet

PMEGP pays a margin-money subsidy of 15% to 35% of project cost, depending on the category of the applicant and whether the unit is urban or rural, with the applicant contributing 5% to 10% and the bank funding the balance. Project cost ceilings sit at ₹50 lakh for manufacturing and ₹20 lakh for service units.

Three things disqualify people who otherwise fit, and all three are structural:

1. The unit must be new. An existing business being expanded is not eligible, and neither is a unit that has already taken subsidy under another scheme.
2. Above ₹10 lakh of project cost for manufacturing (₹5 lakh for service), there is an education floor — Class 8 pass.
3. Selection runs through a district-level task force interview, and a project report that has been copied off the internet does not survive it.

PMEGP also involves EDP training before disbursement, and the subsidy sits in a lien for three years. It is the cheapest money on this list and the slowest.

The bank's own loan, with CGTMSE behind it

If you have a running business with filed returns, this is often the route that is quietly available while you are queueing for a scheme. Under CGTMSE, a lender can extend collateral-free credit to a micro or small enterprise with guarantee cover of up to ₹5 crore, and the guarantee fee is a cost you carry in the pricing.

The thing worth knowing: you do not apply to CGTMSE — the lender does. If a branch tells you "no collateral, no loan", it is telling you about its own appetite, not about the rules. That is a sentence worth carrying to a second bank.

What actually gets applications rejected

In practice the rejections cluster, and most of them have nothing to do with the scheme you picked:

• No Udyam registration, so none of the MSE-specific routes can be used at all.
• Declared turnover that does not match bank credits or GST returns.
• A credit score damaged by something small and forgotten — a consumer-durable EMI, a co-signed loan.
• Registrations the turnover implies but which do not exist, which makes every number on the application unverifiable.
• A project report with no local demand evidence in it.

Do this before you apply

1. Register on Udyam if you have not. It is free, it takes about ten minutes, and it is a precondition for most of what follows.
2. Pull your own credit report and fix what is fixable. This takes weeks, so start it before, not during.
3. Reconcile three numbers: bank credits, GST returns, and the turnover you are about to declare. If they disagree, the file dies at the branch.
4. Decide the instrument from the sorting rule above, and apply for one thing properly rather than three things thinly.

A scheme you are not eligible for is not a funding problem. It is a five-minute question you asked too late.

The official portals are the only place to confirm current numbers: mudra.org.in, kviconline.gov.in for PMEGP, and cgtmse.in.

Scheme limits, subsidy rates and ceilings change with every budget cycle. The figures here were current when this was written — check the portal, or ask Vyavsay AI to check it against your own profile, before you rely on any of them.