What Is The Difference Between A SME Loan And A Business Loan

 

For any business, money is instrumental in making it successful. The capital required for a successful business can be obtained by various means, including venture capital and also loans. SME loans for new businesses and business loans have become very popular these days.

 

What Are Business Loans And SME Loans?

Business loans are the loans that are mostly given for a shorter period of time. They can be used to finance specific needs of the entrepreneurs, like launching products to expand the business or to buy any equipment, etc. If someone establishes a good history of credit while using business loans, it can help the person with future loans.

SME loans aim at helping small and medium businesses so that they can expand. It can also finance the daily operations of these businesses. It is seen that SME loans for new business in India have been used to hire fresh talent apart from marketing purposes.

 

Documentation Required For Issuing Business Loans

Documentation is crucial for business loans. Financial statements, list of shareholders, list of directors and partners, any deed of property owned by the business, etc., can be provided as documentation for business loans.

Small businesses are unable to provide many documents. As a result, SME finance companies in India make sure that SME loans do not require many documents. The minimum documents required include documentation of GST returns of income tax, KYC documents, etc.

 

Need of Credit History and Collateral

Business loans are issued only when businesses carry a good credit history. The bank issuing business loans also look for a good track record, making it very difficult for the small business to obtain it.

On the other hand, SME loans neither require submission of credit history nor do they need the compliance of collateral. This provides security to developing businesses.

 

Interest Rates

The SME loan interest rate ranges from 0.55-3%. Business loan interest, on the other hand, ranges from 12-24%. Thus, SME loan interest rates are pretty low as compared to business loan interest rates.

 

The Time Required For Disbursement

Business loans require a longer time for disbursement. Business loans include many formalities of documentation that the bank has to go through before issuing the loan. Many personal visits to verify the excellent character and reliable nature also take place.

SME loans, however, require a lesser amount of time for issuing the loan. It has been mandatory by the Government to give SME loans within two days of approval.

 

The Amount of Loan Provided

The the sum of money provided as a loan differs primarily between Business loans and SME loans.

The amount of money that can be granted while issuing business loans can become very high. It can go above 20 lakhs and can go to many crores.

However, the amount of money issued by SME loans ranges from 1-20 lakhs.

 

Conclusion

SME loans for new business are highly favorable for the budding industries. Once the company starts growing, a more significant amount of finance is needed, provided by business loans. Thus, it is always advisable to apply for loans from reputed institutions for a seamless, successful business.