✓Minimal Documentation ✓Flexible Repayment ✓Collateral Free Loan | Apply for Business Loan Now!

Depending on the nature of the business, entrepreneurs can now avail of various types of business loans. In this blog, we discuss the features and benefits of business loans and MSME loans. The difference between business loans and MSME loans is also discussed.

 

Business and MSME loans differ when it comes to the scale and age of the business, the purpose for financing, eligibility criteria, loan amount, loan tenure, turnaround time, interest rates as well collateral requirements.

Business Loan vs MSME Loan

Criteria

Business Loans

MSME Loans

Scope of the business

Business loans cater to businesses that have a larger scale of operations than MSMEs, and vintage is often more than MSMEs.

The MSME loan category has been created to cater to the needs of small and medium enterprises.

Purpose of the loan

Business loans are sought by entrepreneurs for purposes of diversifying and expanding their existing business.

MSME loans are used by businesses to fund their day-to-day operations like the purchase of raw materials, equipment, and other daily activities.

Eligibility

Business owners eligible for a business loan are subjected to more stringent checks than MSME loan seekers.

The age of the business and owners’ credit history should be considerable. Lenders also consider business profitability. These requirements warrant comprehensive documentation.

MSMEs aren’t subjected to the same eligibility criteria as business loans. The idea is to help out a new business which may have poor credit history and no prior record of business performance.

Documentation for an MSME loan is fairly simple since the checks aren’t as extensive as in the case of a business loan.

Loan tenure and amount

Business loans typically come with a repayment tenure of five or more years. The loan amount is also higher than MSME loans, often around Rs. 1 crore to Rs. 5 crores.

MSME loans come with lower loan amounts as well as a smaller repayment tenure.

Interest rates

The interest rates on business loans are lower than MSME loans since their risk assessment is robust.

MSME loans carry higher interest rates than business loans, since underwriting is not as extensive as in the case of business loans.

Disbursement time

Since business loans are disbursed after comprehensive risk assessment, the disbursal time is longer.

The disbursal time is much lesser as compared to that of business loans.

Collateral

More often than not, business loan amounts are higher and sanctioned after the lender has secured an adequately valued collateral.

MSME loans are unsecured loans. These loans are meant to encourage small businesses to operate, expand and thrive.

Conclusion

Business loans and MSME loans are designed for businesses that are in different stages of their life cycles. Entrepreneurs, old and new, looking for financing shouldn't be concerned with business loan vs MSME loan, but should identify where their business stands in terms of age, the purpose of financing, the cost of getting the loan (interest rates), and overall eligibility.