Determining the right tool for financing a business is a tedious task. There are many business funding opportunities, which include Non-Banking Financial Corporation (NBFCs), traditional banks, government schemes, and equity financing.
Owing to its ease and affordability, business loans are the most preferred option by businesspersons. The financial sector which comprises of both, banking and non-banking institutions have been serving the economic needs of businesspersons through these business loans and microloans. However, it’s important to determine the best-suited loan for your business and examine the pros and cons of both business loans and microloans before availing the same. Here are the key differences between them which can help you make the right decision:
Loan Amounts
One of the key difference between conventional Business loans and the Microloans is the loan amount that can be borrowed. Microloans are generally a small amount of loan (up to Rs. 1 lakh), whereas business loans can range from a small amount for short tenor to a large amount of loan for long tenor.
Depending upon the purpose and requirement, a business can avail business loans of up to Rs. 50 lakh from NBFCs along with a Flexi loan facility and attractive payout options.
Interest Rates
Another difference between the two is the interest rate charged by the lender. Microloans lender generally charge higher interest rates when compared to regular business loans by banking and Non-banking financial institutions. Conventional business loans are hence more business-friendly, and affordable option for businesspersons.
Loan Term
As we know, microloans are a small amount of loan with high interest rate, their loan term is shorter when compared to traditional business loans. Since most microloan lenders are non-profit organizations, they have to raise funds for the organization in a short duration. This means businesses have to generate enough capital to repay the loans in short period of time if they opt for the microloans. On the other hand, business loans come with a flexible tenor where you can customize the payout term as per your convenience.
Loan Features
Another big point of difference between the microloans and regular business loans are the loan features and the end benefits. While business loans can be used for any purpose, microloan lenders may draw certain lines for the use of loan amount by the business.
Also, business loans by banks and NBFCs come with attractive features like Flexi loan facility where you are approved for a certain loan limit for a specified duration. These loans are generally collateral-free and come with flexible repayment options to suit your business’s economic fluctuations.
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