Shortage of funds is one of the recurring issues for any business. To run a business without any interruption, substantial credit is necessary. That is where a business loan or MSME loan comes into the picture. Any established venture in the market can avail of a business loan. In contrast, an MSME loan is primarily extended to small businesses to finance their daily operations. Moreover, lenders check the MSME databank before approving credit. Since both are for business-related expenses, individuals need to know the differences between them to choose the best option for them.
Top differences between a business loan and an MSME loan
Though both the loans include similar processes and features, their differences are visible, and they are-
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Type and purpose of loan
Business loans are offered to established businesses to fund their growth and expansion. On the contrary, MSME credit finances small-scale businesses. A business loan’s chief purpose is to help meet objectives such as business growth strategies, expansion, and grab new opportunities.
On the other hand, the primary objective of MSME credit facility is meeting the purchase cost of raw materials, manage working capital, scale business operations, etc.
But MSME sectors must register their business in the MSME databank and update information related to their business to ensure eligibility for becoming official government suppliers. It also helps them to qualify for a dedicated business loan for MSME.
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Eligibility criteria
Borrowers can meet their business’s immediate credit requirements with a convenient business loan and avail a substantial amount to fulfil their diverse business requirements. Following are the eligibility criteria for business that needs to be met by the individuals to avail their preferred amount.
- Age should be within 24-70 years
- CIBIL score must be 685 or higher
On the other hand, if a borrower runs a small business and requires emergency funds to meet the expenses, they can avail MSME loan by meeting the following eligibility criteria.
- One must be a resident of India with age between 24-70 years
- Applicants must have a running business for a minimum of 3 years
Ideally, a business loan differs from an MSME loan from one financial institution to another in terms of eligibility criteria. Therefore, it is advised to carefully research the financial institution before applying for any of these loans. Besides, the business must register to the MSME databank.
Besides, individuals also need to submit a list of documents to qualify for both business and MSME loans.
- Business KYC
- Applicant’s KYC
- Business ownership proof
- Bank account details of last 6 months
- ITR papers
- GST certificate
- Business license
Besides, one may also have to present additional documents if necessary.
Moreover, borrowers must factor in credit scores while applying for a business or MSME loan. A CIBIL or credit score determines one’s repayment capacity and helps in availing higher loan amounts with a competitive interest rate. Thus, borrowers must know the concept of credit score and its impact on business before applying for either of the loans.
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Loan amount
Whether a borrower requires short-term or long-term loans, reputed NBFCs offer high loan amount based on eligibility to meet different business requirements. Moreover, a business loan does not require any collateral, which further makes funding easier.
In case of MSME loans, the credit is not as much higher as a business loan. But few financial lenders offer flexible repayment tenor for MSME loans, making it a convenient option for borrowers.
Apart from this, interest rates for both business loans and MSME vary from one lender to another. But reputed financiers offer competitive MSME loan interest rates as compared to business loans. Among various sectors in India, the MSME sector is considered as the base of the Indian economy as it contributes around 30% of the GDP and 48% of total export business.
Apart from availing of substantial loan amounts, eligible borrowers can enjoy pre-approved offers from reputed NBFCs like Bajaj Finserv that accelerate and simplify the loaning procedure. These offers can be available from a wide range of unsecured products such as credit cards, business loans, personal loans, etc. Borrowers can check their pre-approved offers online by submitting their essential credentials.
Conclusion
Thus, while availing of business or MSME loan, it is advised to compare different offers by financial institutions. This will allow borrowers to avail the best business loan that suits their requirements. In the case of MSME, they should be registered under the MSME databank.
Moreover, the interest rates on both the loans vary from one lender to another and depend on one’s repayment history. Every individual must consider credit score as it determines a borrower’s creditworthiness and helps them avail substantial loan amounts at an affordable interest rate.
Thus, it is advised to improve one’s eligibility and research different financial institutions to avail of either a business loan or MSME loan that suits their requirements.
