PMEGP vs MUDRA Loan: Subsidy-Linked Loan or Plain Loan, Which Is Right for You?

Pick PMEGP if you're setting up a new manufacturing or service unit with real capital expenditure and can wait through EDP training and the agency and bank review. In return, 15% to 35% of the project cost comes back as a subsidy. Pick MUDRA if you already run a business, if you trade, or if you need up to Rs 10 lakh quickly. It's a plain loan with no subsidy, but it's simpler to get.

This comparison is based on official guidelines as of October 2026; always check the scheme portals for the latest rules.

PMEGP vs MUDRA at a glance

The core difference: subsidy-linked loan vs plain loan

PMEGP is a credit-linked subsidy. You take a bank loan, and the government pays part of your project cost as "margin money" subsidy. The PMEGP portal FAQ says the subsidy is held in a deposit for three years from the release of your first loan instalment. It's then adjusted against your loan if the physical verification of your unit is positive. It is not paid to you in cash.

MUDRA is a loan. The MUDRA FAQ says "There is no subsidy for the loan given under PMMY." A loan linked to a government capital-subsidy scheme can still be covered under PMMY. MUDRA refinances lenders rather than lending to you directly. Interest rates are deregulated, and banks are advised to keep them reasonable within RBI guidelines.

Limits and subsidy rates

PMEGP. The PIB release of 30 May 2022 raised the maximum project cost to Rs 50 lakh for manufacturing and Rs 20 lakh for service units. Margin money subsidy:

The special category covers SC, ST, OBC, minorities, women, ex-servicemen, transgender persons, differently abled persons, the North Eastern Region (NER), aspirational districts, and hill and border areas as notified (PMEGP portal FAQ). Areas under Panchayati Raj institutions count as rural, and areas under a municipality count as urban (PIB). The bank funds the rest: the Ministry of MSME scheme booklet 2025-26 says banks release 90% to 95% of the project cost. Land isn't part of project cost, and projects with no capital expenditure aren't eligible.

MUDRA. The MUDRA Offerings page lists four categories:

The MUDRA home page says loans go up to Rs 10 lakh, or Rs 20 lakh only for entrepreneurs who have taken and successfully repaid a loan under the Tarun category. A first-time borrower can't get Tarun Plus.

Who is eligible

PMEGP (the PMEGP portal):

• Any individual above 18 years of age, with no income ceiling.
• At least VIII standard pass for projects above Rs 10 lakh in manufacturing or above Rs 5 lakh in business or service.
• Only new projects. Existing units, and units that already got a government subsidy under another Central or State scheme, aren't eligible.
• Only one person per family. The portal's eligibility section defines family as you, your spouse and your unmarried children (its FAQ says "self and spouse", so check with your agency if this affects you).

The portal's eligibility list names only individuals. Companies, LLPs and partnership firms aren't on it.

Your new unit must also be registered on Udyam before its physical verification and the adjustment of the subsidy (PMEGP portal).

Trading is generally restricted. The exceptions, per the PMEGP portal, are:

• retail outlets backed by manufacturing (including processing) or service facilities, anywhere
• outlets selling Khadi, village industry, PMEGP or SFURTI products, anywhere
• other sales outlets, but only in NER, LWE-affected districts and the Andaman and Nicobar Islands

MUDRA (MUDRA FAQ):

• Any Indian citizen with a business plan for an income-generating activity can apply, whether to set up a new micro enterprise or upgrade an existing one in manufacturing, processing, trading or services.
• Eligible applicants include individuals (women included), proprietary concerns, partnership firms, private limited companies and other entities whose loan requirement is up to Rs 20 lakh.

The MUDRA home page describes the scheme as serving "non-corporate, non-farm small/micro enterprises", while the FAQ lists private limited companies as eligible. If you're a company, confirm with your lender.

Collateral

PMEGP: the RBI's 2026 amendment directions advise banks to give collateral-free loans up to Rs 20 lakh to all units financed under PMEGP. The PMEGP portal FAQ also says no collateral is needed for loans up to Rs 20 lakh, as per RBI guidelines. You can ask for CGTMSE cover in the application form.

MUDRA: the Offerings page says MUDRA loans, meaning loans up to Rs 20 lakh, have been made collateral-free as per RBI norms. The RBI directions mandate this for banks' loans up to Rs 20 lakh to micro and small enterprises, so if you borrow from an NBFC or MFI, ask about its policy. MUDRA's FAQ adds that Shishu loans are normally processed in 7 to 10 days once the bank has complete information.

Where and how to apply

PMEGP: apply online on the PMEGP 2.0 portal, which the Ministry of MSME announced for launch on MSME Day, 27 June 2026, with JanSamarth integration for loan processing (PIB, 25 June 2026). Per the portal FAQ:

1. Your application goes to the implementing agency you chose: KVIC, KVIB, DIC or, for coir, the Coir Board.
2. If it meets the satisfactory score, it's forwarded to your chosen bank, which appraises it and makes its own credit decision.
3. You complete EDP training if your project costs more than Rs 2 lakh. It must be done before the bank releases the loan, and you can take it any time after you apply.
4. You deposit your own contribution, the bank releases the loan, and KVIC validates the subsidy claim.

Full steps: our PMEGP application guide, and the scheme summary on our PMEGP listing.

MUDRA: you can apply at a nearby branch of a bank, NBFC or MFI, or online. The MUDRA FAQ names the Udyamimitra portal, and PMMY is also listed on JanSamarth. MUDRA says it has appointed no agents or middlemen. Full steps: our MUDRA loan guide, and the summary on our MUDRA listing.

A note on the PMEGP scheme cycle

PMEGP was approved for 2021-22 to 2025-26 (PIB, 30 May 2022). A PIB release of 7 May 2026 reports on that cycle and says the Ministry will strengthen PMEGP "in the forthcoming cycle". We didn't find revised limits or rates for the new cycle in official sources, so check the e-portal for current rules before you prepare your project report.

Which fits whom

PMEGP fits you if:

• you're starting a new manufacturing or service unit with real capital expenditure
• the project costs up to Rs 50 lakh (manufacturing) or Rs 20 lakh (service)
• you can put in 5% to 10% yourself, complete EDP training and wait through the agency and bank review
• you belong to a special category or are setting up in a rural area, which gets you a higher subsidy

MUDRA fits you if:

• you already run a business and want to grow it
• you trade
• your business is a partnership or company
• you need a small amount such as a Shishu loan quickly, or you want working capital without a project review

You can use both, one after the other. The 2025-26 booklet says existing well-performing PMEGP, REGP and MUDRA units can get a second loan for upgrading with a subsidy. That loan covers projects up to Rs 1 crore in manufacturing and Rs 25 lakh in service or trading, with a subsidy of 15% of project cost (20% for NER and hill states). The subsidy is capped at Rs 15 lakh, or Rs 20 lakh in NER and hill states. To qualify, your subsidy must have been adjusted, your first loan repaid on time, your unit profitable for the last three years, and your unit on Udyam.

Comparing options? Browse business loans, subsidies and schemes.

FAQ

Does a MUDRA loan come with a subsidy?

No. The MUDRA FAQ says PMMY has no subsidy. If your loan is linked to a government scheme that gives a capital subsidy, that scheme's subsidy can still apply.

Can I use PMEGP for my existing shop or unit?

Not for the first loan. Only new units qualify. Once you have an existing PMEGP or MUDRA unit, you may qualify for the PMEGP second loan for upgrading.

Which is easier to get?

MUDRA has fewer steps. You go to a lender, and there's no compulsory training or agency scoring. PMEGP adds implementing-agency scrutiny and, above Rs 2 lakh, EDP training. That extra work is what earns you the subsidy.

Can my private limited company apply?

For MUDRA, the FAQ lists private limited companies as eligible, but the home page describes the scheme as serving non-corporate enterprises, so confirm with your lender. For PMEGP, companies aren't on the eligible list.

Do I need collateral?

Not for loans up to Rs 20 lakh under either scheme, per the RBI directions, the PMEGP portal FAQ and the MUDRA Offerings page. Your bank still appraises the project and makes its own credit decision.

Can someone help me with a project report?

Yes. You can apply for both yourself, and MUDRA has no agents. For help with a PMEGP project report, see our services.

Sources

• PIB: Continuation of PMEGP for 2021-22 to 2025-26 (30 May 2022)
• PIB: PMEGP in the 15th Finance Commission cycle (7 May 2026)
• PIB: MSME Day 2026 and launch of the PMEGP 2.0 Portal (25 June 2026)
• PMEGP 2.0 portal, Ministry of MSME
• PMEGP portal: FAQ
• RBI: Lending to MSME Sector (Amendment) Directions, 2026
• Ministry of MSME: Schemes for MSMEs booklet 2025-26 (PDF)
• MUDRA: Home page
• MUDRA: Offerings
• MUDRA: FAQ
• JanSamarth: Pradhan Mantri MUDRA Yojana

Cover photo: Gowtham AGM on Unsplash