PMEGP or MUDRA: Which Scheme Fits Your Business in 2026

PMEGP funds a new business with a subsidy. MUDRA funds a working capital ask without one. PMEGP runs from ₹5 lakh to ₹50 lakh of project cost. MUDRA runs from ₹50,000 to ₹10 lakh, with no subsidy attached.

A tea-stall owner needing ₹50,000 for new stock before Diwali walks into the nearest SBI or Bank of Baroda branch, asks for MUDRA Shishu, takes the form home, fills it that night. An owner setting up a textile unit with ₹30 lakh of machinery files a PMEGP application through the District Industries Centre.

PMEGP pays a margin money subsidy of 15 to 35 percent of project cost. The exact rate depends on category and location. A general-category applicant in an urban area gets 15 percent. The same applicant in a rural area gets 25 percent. An SC, ST, woman, OBC, minority, or ex-serviceman applicant gets 25 percent urban and 35 percent rural.

The project cost ceiling is ₹50 lakh for manufacturing and ₹20 lakh for service. The applicant brings 5 to 10 percent margin. The bank funds the rest as a term loan. The subsidy sits in a Subsidy Reserve Fund for three years, then gets adjusted against the loan balance.

The catch is timeline. From application to bank sanction usually takes 60 to 90 days. The DIA review eats 30 days. The bank credit appraisal eats another 30 to 60 days. Owners who need money in three weeks should look elsewhere.

MUDRA has three tiers. Shishu covers loans up to ₹50,000. Kishore covers ₹50,001 to ₹5 lakh. Tarun covers ₹5 lakh to ₹10 lakh. A newer Tarun Plus tier goes up to ₹20 lakh.

There is no subsidy. The benefit is structural: every loan in these tiers is collateral-free, and any scheduled commercial bank, RRB, cooperative bank, NBFC, or MFI can issue one.

Interest rates vary by lender. PSBs typically sit at 8.5 to 12 percent. NBFCs and MFIs run higher, sometimes 14 to 22 percent. The trade-off is speed. PSB Kishore loans get disbursed in 7 to 14 days, NBFCs in 2 to 5 days.

PMEGP makes sense when project cost is ₹5 lakh or higher and the business has not yet started commercial operations. Manufacturing units benefit the most because the ₹50 lakh ceiling allows real machinery spend.

A new flour mill in a rural Maharashtra district, costing ₹28 lakh, with an SC owner, gets a 35 percent margin money subsidy. That is ₹9.8 lakh of subsidy on a ₹28 lakh project. The owner brings ₹1.4 lakh margin. The bank funds ₹17 lakh. No other central scheme gives a new factory this much free money.

MUDRA wins on speed and accessibility. A street vendor needs ₹40,000 for new stock before Diwali. PMEGP would take 90 days. MUDRA Shishu disburses within two weeks at any bank or MFI.

MUDRA also wins for existing businesses. PMEGP is strictly for new units, so a kirana shop running for five years cannot use it. Kishore or Tarun is the natural fit for that owner if working capital is the need.

A common path MSME bankers describe runs like this. Year one, the owner takes a Kishore MUDRA loan of ₹3 lakh to launch a small service unit. Year three, with cash flow proven and Udyam in hand, the owner files a PMEGP application for a ₹30 lakh expansion into a leased shed with new machinery.

The two schemes do not compete in that path. A working capital loan now, a capex subsidy when the business has earned the right to scale.

Three quick checks settle most cases. Project cost above ₹5 lakh and business not yet started points to PMEGP. Project cost under ₹10 lakh and business already running points to MUDRA. Both ceilings hit by the same need usually points to PMEGP for the subsidy and a smaller MUDRA working capital loan layered on top.

Where the numbers are unclear, the five-minute Yojana Mitra wizard at yojanamitra.co/wizard runs the same logic against 3,500 schemes and shows which ones a specific profile actually qualifies for.