Every business needs capital to grow. This is especially true for new ones in their early years. Securing funding can be challenging. Entrepreneurs can turn to banks, Non-Banking Financial Company (NBFC), or government agencies for business loans online. However, several factors come into play. These include your industry, business size, credit score, and loan needs. They determine if you qualify for a standard loan or need microfinance.
What are Microloans and Who Benefits?
Microloans aim to support small business entrepreneurs. In India, over 70% of businesses are Micro, Small, and Medium Enterprises (MSMEs). Thus, microfinancing is vital. It helps people, especially in small towns, become self-reliant and create jobs.
Understanding the Difference Between Regular Business Loans and Microloans
- Lending Entity
Microloans differ from regular business loans in their lenders. Traditionally, credit unions and NGOs offered microloans to promote self-employment. Today, small finance companies, fintech firms, and crowdfunding platforms offer them.
Comparatively, structured business loans are available only from scheduled banks, NBFCs, or specific agencies like SIDBI and CGFMSE. Your choice of lender depends on the type and amount of loan you need.
- Credit Availability
Microfinance lenders provide small loans, typically up to ₹1 lakh. They aim to assist many small business owners, so they limit their loans to a single borrower. This strategy helps them support more entrepreneurs and reduce risk.
Whether online or offline, business loans vary in type, duration, and amount to meet your business needs. Unsecured loans can range from a few lakhs to ₹1 crore. Banks or NBFCs will conduct a detailed assessment for larger loans and may ask for collateral.
- Loan Purpose
Microloans often kickstart businesses or support ongoing operations. They can fund inventory, equipment, rent, or salaries. However, they cannot cover existing business or personal loans.
Business loans are flexible. You can use them to expand, buy assets, or consolidate debt. Lenders may allow even more uses depending on the loan’s amount and type.
- Interest Rates and Repayment Terms
Microloans have higher interest rates and shorter repayment periods than standard business loans. They are for people without strong credit or collateral. Use an EMI calculator to plan repayment.
Bank loans for businesses often have lower interest rates. They target businesses with good credit history. Repayment terms can extend for years, based on the loan size and lender rules. Additionally, an EMI calculator for business loans helps manage these payments. It helps keep your business financially on track.
- Application Process and Documentation
Microloans are quicker and easier to apply for, needing less paperwork. This is because microfinance institutions cater to small business owners. However, you still need to provide some basic documents: proof of identity, business registration, and a business plan.
Getting a regular business loan is more streamlined. It requires a deep dive into your company’s finances, credit, and plans. You will need to provide financial statements, tax returns, and, for secured loans, a collateral report.
Based on your business size, financial needs, and lending rules, choose between a regular business loan and a microloan. Additionally, always ensure that you consider repayment ability and use an EMI calculator to plan your finances.
