Last Updated on November 4, 2023 by Hina Rubab
According to Government data, there are approximately 90.19 lakh MSMEs in India, employing almost 11 crore workers and contributing to 29% of the nation’s GDP. These statistics reveal that MSME/SME play a crucial role in the overall economic growth of the country. Unfortunately, despite the tremendous growth of small and medium scale industries in recent year, a number of new businesses still suffer from the lack of funds. In order to tackle this issue, several financial institutions, both private and Government-backed, offer SME loans. Such loans aid new entrepreneurs as well as existing ones to borrow sufficient working capital to fund their business growth.
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What is an SME loan?
Small and Medium Enterprises (SME) across India suffer because of inadequate funds and lack of resources. SME loans provide financial backing so that small business owners can fulfil their business requirements such as purchasing raw materials, procuring new equipment, extending their business to a new location, etc.
What is a business loan?
As the name suggests, business loans are credits offered to companies to provide them adequate financial backing to fund daily operations as well as occasional expenses. These loans can also be an excellent option to improve borrower’s credit history, helping them borrow at competitive terms in future.
However, although business loans and loans for SMEs may seem almost the same, there are several differences between the two.
Significant differences between SME loans and business loans
More or less every business requires additional funds to pay for certain operational expenditures. Several financial institutions offer customised business loans like SME loans, working capital loans, etc. along with standard business loans. However, they have some differences in features.
Following are some of the most common differences between SME loans and business advance in India.
- Loan purposes
Most SME loans are taken to establish a start-up, buying new machines, raw material, etc.
On the other hand, a standard business loan is generally not sanctioned for start-ups. Instead, existing business owners avail this to secure additional working capital, pay for new inventory, expand their organisational reach, take on a big project, hire workers, etc.
- Loan amount and interest rates
In general, loans for SMEs offer lower loan amounts compared to a business loan. Usually, business loans can be of up to Rs.20 lakh; however, this amount may vary between different financial institutions.
Moreover, the interest rates of business loans are less compared to loans for SMEs. However, different lenders offer loans for SMEs with competitive interest rates that won’t pinch your budget.
However, before deciding the loan amount, you must know how to prepare your organisation for a business loan.
SME loans are generally short-term credits. On the other hand, business loans come with a flexible longer tenure of up to 8 years.
However, top lending institutions like Bajaj Finserv offer SME loans with extended loan tenure and easy repayment facility, including the provision for prepayment without any additional charges.
They also provide pre-approved loan offers to eligible applicants which facilitates faster loan approval. Such offers are available for different financial products as well, such as business loans, personal loans and other financial products. You can check your pre-approved loan offer by sharing your name and contact number.
Typically, lenders offer such credits after assessing some essential documents like proof of business vintage, GST certificate, income tax documents, annual turnover, etc.
Alongside a proper understanding of all kinds of business loans, you should also develop an insight into how to ensure your business never runs out of working capital. It will help you to sustain the organization and achieve future goals.