Determining the right tool for financing a business is a tedious task. There are many business funding opportunities, which include non-banking financial corporations (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 both banking and non-banking institutions have been serving the economic needs of businesspersons through these business loans and microloans. However, it is 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 differences between conventional Business loans and the microloans is the loan amount that can be borrowed. Microloans are generally a small amount of loans up to Rs. 1 lakh. Whereas business loans can range from a small amount for short tenure to a large amount of loans for long tenure.
Depending upon the purpose and requirement, a business can avail business loans of up to Rs. 80 lakh from Bajaj Finance. 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. Microloan lenders generally charge higher interest rates when compared to regular business loans by banking and non-banking financial institutions. Conventional business loans are hence a more business-friendly and affordable option for businesspersons.
Loan Term
As we know, microloans are a small amount of loan with a higher interest rates, and their loan term is shorter when compared to traditional business loans. Since most microloan lenders are non-profit organisations, they have to raise funds for the organisation in a short duration. This means businesses have to generate enough capital to repay the loans in a short period of time if they opt for the microloans. Business loans come with a flexible tenure where you can customise the payout term as per your convenience.
Loan features
Another significant 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 amounts by the business.
Also, business loans by banks and NBFCs come with attractive features like the Flexi Loan facility. Here 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 economic fluctuations.
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