The key difference between the Business loan and MSME loan

Business loan: Money is a very crucial resource to bring the business idea to the floor. The perfect recipe for a successful business is an innovative idea and enough capital. However, it is easier said than done. It is so because when entrepreneurs set up businesses, they have to struggle a lot to arrange for finances, investors who can make venture funding or seed funding. However, these are not only the sources to avail the capital.

Business owners can always rely on loans to start or expand their businesses. The benefit of taking loans is that the complete control of the business and its affairs remain with you. There are two kinds of loans that are usually granted – MSME loans and business loans.

MSME Loans are business loans designed for small business owners. They are completely hassle-free and can be easily availed without requiring any complicated documentation. On the other hand, business loans are usually granted to businesses with a big turnover.

A hefty business loan comes with a complex documentation requirement. Are you still confused as to which type of loan should you avail of? Then don’t worry, we have got you. Keep on reading to find out what differentiates the terminologies, business loans and MSME loans.

The key difference between the Business loan and MSME loan

Type of business 

The foremost difference between both the loans is the type of businesses to which the loans are made available. The Business loan is given out to the established businesses to expand their operations. On the contrary, MSME loan is provided to small businesses to lay the foundation of their business

Purpose

The purpose for which both loans are disbursed is in tandem with each other. Usually, the business loan is granted to large businesses that have the sole purpose of diversification and expansion. Whereas, small businesses take MSME loans to fund their day-to-day operations or start a new business. For example, they avail the loans to fund the expenses of raw materials, equipment, transportation, etc.

Loan eligibility 

To avail of any kind of loan, the businesses need to meet certain eligibility requirements. The business loan eligibility conditions are stringent compared to MSME loans. Before lending a business loan, the lender makes a thorough enquiry about the borrower I.e. his credit history and experience of running a business. In addition, the lender also ensures that the profits of the business are enough to meet the interest payments. To simply put, the documentation process to avail business loans is cumbersome and complicated.

On the contrary, the loan eligibility conditions to take an MSME Loan are lenient. When MSME loans are disbursed, the lender doesn’t make an enquiry into the profitability of the business. However, the borrower must have a good credit score. Additionally, The documentation process is straightforward.

Tenure and Amount of the loan

A business loan is availed for a longer period. This type of loan consists of bigger amounts, at least 5 crores with a repayment period of 5 years and above. It means that the businesses have enough time to repay the whole amount.

On the other hand, the MSME loan amount is comparatively smaller and given out for a short period. Some financial institutions offer payment flexibility to small businesses so that they can repay the loan amount conveniently.

Rate of Interest

Since Business loans are usually granted for the long-term, therefore the interest charged on these loans is lower. On the other hand, the interest charged on the MSME loans is slightly higher.

Conclusion

MSME loan and Business loan are two completely different terminologies. When a businessman applies for a business loan online, it means that he has to meet complex loan eligibility requirements to avail a large sum of the loan at a lower rate for a longer period. 

On the contrary, MSME loans are usually of the smaller amount that comes with higher interest rates. The tenure of MSME loan is of a shorter term and availed to start up a business. Therefore, in case you are running a small business, then you should avail of MSME loans. Be sure to seek assistance from expert professionals to avail more knowledge and information about the concept of Business and MSME loans.