Small businesses are the heart of the Indian economy. To grow, they often need money lender near me. For a growing business it might be challenging to find enough capital to expand further. Using the money from the business owner’s savings account is not the ideal way to grow the business as it can lead to more challenges for the business owner. However there are good business loan options for an MSME business owner. These funding options can come from two main types of loans: micro business loans and regular business loans.
What is a Micro Loan?
A micro loan is an alternative name for small business loans. It would be a smaller amount of loan usually ranging less than 30 to 40 lakhs which is given to small business owners. These are usually given to those who are just starting out or don’t have a good credit history. This capital can be used to buy an MSME business to buy new/used equipment, pay their salaries, or to cover other small business costs.
What is a Regular Business Loan?
A regular business loan is a larger amount of money given to businesses by central and private banks or other financial institutions. These loans are often used to expand the business, buy property, or invest in new projects. To get this loan, you usually need a good credit history and other financial documents. These loans are usually taken by private limited companies and Limited by Liability Private companies (LLP’s). MSME business owners usually don’t depend on these loan types due to the capital risk involved and the need for collateral involved. Secured loans are not an ideal option for an MSME.
Key Differences Between Micro Loans and Regular Business Loans
- How much money you can get: Micro loans are smaller in capital involved than the regular business loan types.
- Who can get the loan: Micro loans are easier to get if you don’t have a good credit history. Micro loans can be availed even without needing collateral if you are applying from an NBFC. Regular loans usually need a good credit score and might need you to pledge capital.
- How long you have to pay back: Micro loans have shorter payback periods. Regular loans have longer payback times.
- Interest rates: Regular msme loan types have comparatively lower interest rates because from the lender’s point of view the risk involved is lesser as they limit disbursals based on credit scores, financial documents and collateral. Micro loans given to small businesses often have higher interest rates because they are riskier for lenders as they are given without needing collateral also.
- Need for something to guarantee the loan: Micro loans usually don’t need something to guarantee the loan (like your house or car). Regular loans often require this.
- Where to get the loan: Micro loans come from special organizations or government programs. Regular loans come from banks or other financial institutions.
Which one is right for you?
The best business loan for your business depends on your business needs. If you’re just starting out and need a small amount of money quickly for building up the business or for machinery needs, a small business loan from an NBFC would be the best option for you. If your business is well established and has a very healthy cash flow, and you need large loan amounts ranging above 40 lakhs, a regular business loan might be better.
For an MSME owner it makes sense to consider loans from NBFCs as the loan types are designed specially to help MSMEs. Always remember that whether you opt for a small business loan or regular business loan, building a good credit history is important for negotiating better loan terms in the future.
