If you are starting or growing a small business in India, two schemes come up again and again: MUDRA and PMEGP. They sound alike, but they work very differently. Here is a simple way to choose.
MUDRA: a collateral-free loan
MUDRA gives collateral-free loans to small non-farm businesses such as shops, services, food units and small manufacturing. Loans come in stages (Shishu, Kishor, Tarun and Tarun Plus), so you can start small and move to a larger loan as your business grows. You repay it like any bank loan, with interest.
PMEGP: a loan with a subsidy
PMEGP is meant for setting up a new micro-enterprise. The bank gives the loan, and the government adds a margin-money subsidy that depends on your category and whether you are in a rural or urban area. You also need a project report, and the subsidy is released after the bank sanctions the loan.
How to choose
- Existing business needing working capital or expansion: MUDRA is usually the simpler route.
- Brand-new unit and you want a subsidy: look at PMEGP first.
- Not sure: prepare one good project report. Banks ask for it under both schemes.
Common reasons applications are rejected
- A project report with unrealistic sales numbers
- Missing registrations such as Udyam
- Applying under the wrong scheme for the business stage
Scheme limits and subsidy rates change from time to time, so always confirm the latest rules with your bank or the official scheme portal before you apply.
Go deeper
Our guide Government Schemes, Loans and Subsidies for MSMEs and Start-ups in India 2026 explains 23 schemes in plain language, with eligibility, worked examples, a document checklist and a 30-day application plan. Get the Kindle edition on Amazon.in, or see all our titles on the Books page.
Need research for your own business idea, such as a feasibility study or customer survey? Visit the ARS Marketplace or write to us through arsmrs.in.