Which one should you choose, a business loan or a micro loan? Both these loan types have their own set of strengths and weaknesses. Here we have a detailed comparison of the two based on the key differences. Read through the comparison to arrive at a well-informed decision for your business.
Amount of the loan
This is where the most basic difference between these two loan types arises. You can acquire a micro loan if you need funds up to Rs. 1 lakh. Whereas, the upper cap for business finance depends on your lending institution. Most of them lend you credit up to Rs. 30 lakhs, while others up to Rs. 50 lakhs. The amount sanctioned under both loan categories depends on factors such as your past credit score and repayment history.
Interest rates
Sometimes micro loans are sanctioned with a slightly higher interest rate as opposed to business finance. A business loan’s interest range can vary manifold. Depending on the borrower’s credit history and annual turnover, these loans can generally start from as low as 5% and go above 21%.
Term of the loan
While there is no rule of thumb, a micro loan usually comes with a short tenure. Traditional business finance tenures can go up to 36 months. If you want to be entirely sure of the tenure your lender provides, use their online business loan EMI calculator to strike a perfect balance between the loan term, interest rate and principal amount.
The end use of the funds
Lending institutions allow the use of business finance for any end-purpose related to business operations. This may include paying off debts to vendors, purchasing machinery and other equipment, stocking inventory, paying salaries, and much more.
On the other hand, you can use micro loans for specific business operations, such as paying the rent of your office premises, staff salaries, purchasing inventory, etc. However, with paying off debts this loan type, you cannot clear your business debts.
In conclusion
There you have it! The key differences between business loans and micro loans. Picking one will entirely depend on your business’s working capital requirements, end goals, etc.
Before applying for any one of these two types of finance, make sure to research online for the right lender – one who offers a competitive micro or business loan interest rate.
With the right lending institution, you can negotiate flexible repayment terms and get your loan approved with minimal paperwork. So, why wait any longer? Choose the right loan type for you and begin or grow your business operations manifold.
