Business Loan Vs MSME Loan: The Difference?

Having access to and availability of adequate business loan and funding is crucial to running a business successfully. Accessibility to capital is important for all sorts of things, whether it is expanding your service line or even launching a new product. Here comes loans. Loans serve as one of the ways businesses can secure adequate funding. They give you the financial push wherever necessary. 

In recent days, several banks and non-banking finance institutions or NBFCs, offer different types of loans via easily accessible business loan. However, comparing different loan options available for example, business loans and MSME loans, their purpose, and eligibility can help you make better choices.  

Understanding Business Loans and MSME Loans 

Business loans are the loans offered by banks and NBFCs with no backing from any government schemes. These are independent financial solutions designed for businesses. The application, eligibility, loan tenure, interest rates, and other factors related to the loans depend on the lender’s will. 

The bank specifically designs a Micro, Small, & Medium Enterprises (MSME) loan to support small or mid-sized businesses, including startups.. An MSME can be any business with a turnover not exceeding ₹250 crores and where the capital investment should not be any more than ₹50 crores, according to the Ministry of Micro, Small, & Medium Sized Enterprises.

Given how crucial and big a role MSMEs play in growth and development, the government enables certain schemes to especially support small and medium-sized businesses via MSME loans. MSME loans are also a type of business loan. Their difference lies in the greater flexibility, easy eligibility, and lower interest rates in comparison to other loans. 

Business Loan Vs MSME Loan

Comparing both these loans can help you understand what best suits your business and requirements. Here are some of the major differences between a business loan and an MSME loan:

• Type of the Business: 

A business loan specifically targets well-established businesses seeking further growth. This means businesses with turnover and capital investment exceeding ₹250 crores and ₹50 crores, respectively, can apply for business loans but not MSME loans. 

On the other hand, any business that comes under the definition of MSMEs can apply for online business loans as well as SME loans, based on their needs. It is important to note that businesses related to retail trade, education, and agriculture training are not eligible for MSME loans. 

• Purpose of the Loan:

You can avail an Online Business Loan for various purposes, such as business expansion, launching new products, or purchasing capital. MSME loans specifically support needs like marketing, purchasing equipment, and more. You can avail an Online Business Loan for various purposes, such as business expansion, launching new products, or purchasing capital. MSME loans specifically support needs like marketing, purchasing equipment, and more.

• Interest Rates:

The interest rates on MSME loans are comparatively lower. They intend to financially support small and medium-sized businesses, which is why this happens. On the other hand, the interest rates on business loans depend on the business size, credibility, market trends, and other related factors. By understanding your credit score and repayment details, you may enjoy better business loans. 

• Loan Eligibility:

The eligibility criteria for MSME Loans and Business Loans are less stringent. It includes relaxed criteria like filing tax returns, no history of being a tax defaulter, and so on. However, in the case of business loans, the applicants may need to adhere to criteria like being an Indian citizen, having a good credit score, and more. 

• Loan Amount and Repayment:

MSME loans have comparatively lower maximum limits. For example, businesses may borrow up to ₹2 crores without any collateral. Plus, the repayment tenure ranges between 5 to 15 years. However, for business loans, you may borrow big amounts and the repayment tenure depends on the lender. 

Final Word 

According to a report by PIB, the total share in exports by MSMEs for 2023-24 is 45.56%. Further, for 2021-22, their contribution to GDP stood at 29.15%. Given how significantly MSMEs are contributing to the society and economy, granting MSME Business Loan can be a great means of their upliftment and expansion. 

With so many options available, it might be a bit overwhelming for borrowers to choose a suitable loan. Consider your business type, do some research, and compare different loans to make the best decision for yourself.

Having access to and availability of adequate business loan and funding is crucial to running a business successfully. Accessibility to capital is important for all sorts of things, whether it is expanding your service line or even launching a new product. Here comes loans. Loans serve as one of the ways businesses can secure adequate funding. They give you the financial push wherever necessary.