What Are the KeyDifferences between SME Loans and Business Loans?

Whether you are a small business owner or a founder of a large organization, you needcapital to ensure that your venture operates smoothly. Initially, you may rely on funds from friends and family members; however, you require formal credit to take your business to the next level.

Banks and non-banking financial companies (NBFCs) offer different kinds of credit facilities for business owners. Here, we compare business loans and Small and Medium Enterprise (SME) finance, to help you get a clear idea.

Business loan

A business loan is available for a big corporateorganization. You may use such a loan for various purposes, like expansion, growth, buying new equipment, renting a property, upgrading infrastructure, and acquiring new business, among other objectives. If you need to meet immediate fund requirements for a brief period, you may avail of a short-term loan. Such an alternative can help you in establishing a credit history.

SME loans

An SME loan is beneficial for small and medium enterprises. It can help them in executing their regular operations or expanding their businesses. An SME may utilize this loan for meeting working capital needs, buying inventory or equipment, and other purposes.

Several lenders offer credit facilities to micro, small, and medium enterprises (MSMEs) in the form of MSME loans.

Here are a few distinguishing points between these two types of loans:

  Business loans SME loans
Amount Higher, as the loan is provided to established companies Lower, when compared to larger corporate loans
Documentation Stringent and includes a lot of paperwork Minimal and provides flexibility in the MSME loan eligibility criteria
Processing time Often, it is longer as the entire procedure is cumbersome Faster processing time and quick disbursal
Credit history Plays a critical role in determining loan eligibility May not be mandatory for a small loan
Duration  Long-term Often, are short-term credit facilities
Interest rate Usually, these loans come at a higher rate of interest MSME loan interest rates are affordable and lower than regular business loans

Both these options are excellent ways to meet the financial requirements of your business. However, you must understand the features, terms and conditions, eligibility criteria, interest rate, loan duration, collateral requirements, and repayment options before making a decision.

Mahindra Finance offers attractive terms and conditions. Visit the company’s website, take some time to research, and choose a suitable loan from this reputed lender.