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Just like individuals have various loan options like home loans , vehicle loans, and personal loans, financial institutions now also offer many different types of loans to businesses . As MSMEs (Micro, Small, and Medium Enterprises) are consistently growing in India, lenders now offer exclusive loan products for MSMEs.But these loans are different from standard business loans. If you are looking for a loan to fund your business operations, here are some of the biggest differences between a business loan and MSME loan to help you make the right decision-
| Topic | Business Loans | MSME Loans |
| 1. Business Type | While a business loan is for established businesses aiming for growth and expansion |
MSME loans are for small businesses.
There are financial institutions that offer MSME loans to start-ups as well. Standard business loans are generally not available for start-ups. |
| 2. Loan Purpose | Business loans are generally taken by established businesses to fund their expansion, growth, or diversification. | Smaller businesses generally take MSME loans to fund their operations. For instance, they can take the loan for purchasing equipment, commercial vehicle, raw materials, marketing, or manage day-to-day business activities. |
| 3. Eligibility for Loan |
Eligibility requirements for a business loan
are more stringent. The lender would like to ensure that the borrower has a decent credit history and considerable experience of running the business. Also, the business should have been profitable consistently to be eligible for the loan. This also means that the documentation for business loans is more complicated. | The eligibility requirements are more lenient when it comes to MSME loans. As such loans are offered to small and new businesses, the track record in terms of business profitability is not as crucial as with business loans. But the borrower still needs to have a decent credit score. Documentation is generally pretty straightforward. |
| 4. Loan Tenure and Amount |
Business loans are mostly bigger loans with longer repayment tenure. They can be above Rs. 1-5 crores with a repayment tenure of 5 years or more. This ensures that the businesses have adequate time to repay the loan. | MSME loans, on the other hand, are smaller loans with smaller tenures. But top financial institutions do offer enhanced repayment flexibility to ensure complete convenience. |
| 5. Interest Rates | Business loans are generally offered at a lower interest rate. | MSME loans have a comparatively higher interest rate. |
So, if you are planning to take an MSME loan for new business , do consult at least a few lenders before making a decision so that you select one that is reliable, reputed, and offers MSME loans at highly competitive interest rates.
Funding Business Needs with a Loan
With so many types of business loans now available, it is not always easy for a first-time borrower to make the right decision. But now that you know the difference between business loans and MSME loans, the selection between the two shouldn’t be difficult.No matter what type of loan you select, do adequate research and compare the offerings of at least a few top lenders to pick the best to fund your business.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
