Overview
Union Bank of India, formed through the merger of Union Bank and Andhra Bank in 2020, has emerged as a key MSME lender with a particularly strong offering under the Government of India's MUDRA (Micro Units Development and Refinance Agency) scheme. The bank serves over 1.2 crore MSME customers across India and is one of the most active MUDRA loan disbursers in the country.
In 2026, Union Bank offers business loans ranging from ₹50,000 (MUDRA Shishu) to ₹2 crore (MSME term loans) catering to micro enterprises, small businesses, and medium-sized companies. The bank's positioning in the MUDRA segment makes it the go-to lender for first-time business borrowers and micro enterprises who may not qualify for larger private bank loans.
MUDRA Loan Schemes
MUDRA loans under the Pradhan Mantri Mudra Yojana (PMMY) are the most accessible business loans in India — requiring minimal documentation and no collateral:
- Shishu: Up to ₹50,000. For micro businesses, street vendors, artisans in early stage. Subsidised rate from 8.50% under PMMY.
- Kishor: ₹50,001 to ₹5 lakh. For businesses with some operational history needing working capital. Rate: 10.50%–12.50%.
- Tarun: ₹5 lakh to ₹10 lakh. For established micro businesses ready to scale. Rate: 11.25%–13.00%.
💡 MUDRA loans are government-guaranteed and do not require any collateral or third-party guarantee. The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) covers Union Bank's risk on these loans.
MSME Term Loan
Beyond MUDRA, Union Bank offers full-fledged MSME term loans for established businesses:
- Loan amount: ₹10 lakh to ₹2 crore
- Purpose: Working capital, plant and machinery purchase, business expansion, trade finance
- Tenure: Up to 7 years for term loans; up to 1 year for working capital
- Collateral: Required for loans above ₹10 lakh (property, plant, equipment)
- Interest rate: 11.25%–14.50% based on business profile and CIBIL
Interest Rates 2026
- MUDRA Shishu: 8.50% (government subsidised) to 10.00%
- MUDRA Kishor/Tarun: 10.50%–13.00%
- MSME term loan (secured): 11.25%–13.00%
- MSME term loan (unsecured): 12.50%–14.50%
Eligibility Criteria
- Business type: Any legal business entity — sole proprietor, partnership, LLP, Pvt Ltd, cooperative
- Business vintage: Minimum 6 months for MUDRA loans; 2 years for MSME term loans
- Annual turnover: Minimum ₹5 lakh for Kishor; ₹20 lakh for MSME term loans
- CIBIL Score: 650+ for MUDRA; 680+ for MSME term loans
- No wilful default or NPA status on any existing loan
Processing Fees
- MUDRA loans: Zero processing fee (government scheme)
- MSME term loan: 1.00%–1.50% + GST
- Prepayment: 2% on outstanding balance for term loans (nil for working capital)
- Delayed payment: 2% per month penal interest
✅ Zero processing fee on MUDRA loans saves significant money for micro enterprises that typically have limited cash flow. Axis Bank and ICICI charge 1.5%–2.5% for similar loan sizes.
✅ Pros
- MUDRA loans are collateral-free and government-backed
- Zero processing fee on MUDRA (Shishu, Kishor, Tarun)
- Accessible to micro businesses from just 6 months vintage
- Highly competitive Shishu rate from 8.50%
- MSME term loans up to ₹2 crore for established businesses
- CGTMSE guarantee reduces bank risk, improving approval chances
❌ Cons
- Slow processing — 10–20 working days for MSME term loans
- Digital platform is below par compared to Axis or ICICI
- MSME term loans above ₹10 lakh require tangible collateral
- Customer service quality inconsistent across branches
- Limited product innovation compared to private sector
EMI Calculation
MUDRA Tarun ₹8 lakh at 12.00% for 60 months: Monthly EMI ≈ ₹17,793. MSME term loan ₹50 lakh at 12.50% for 84 months: EMI ≈ ₹87,021.
Our Verdict
Union Bank is the top recommendation for first-time business borrowers and micro enterprises seeking MUDRA loans. The zero processing fee, government backing, and accessibility from just 6 months of business vintage make it unbeatable in the micro-lending space. For larger MSME financing above ₹25 lakh, Axis Bank or HDFC offer a better combination of speed and service despite higher rates.