—
It is the quintessential truth of this world that money talks. Our entire world is governed by it. Purchasing power is what separates the ‘Haves’ from the ‘Have Nots’. If you function in the business sector, you will require investment and financial wealth to grow, expand, and diversify. The form of this cash influx could be anything. Most often, however, it is in the form of loans.
Business loans and MSME loans are two of the most common forms of loans for businesses.
What are these loans?
Established businesses that are looking to expanding and diversifying can avail business loans. These loans may either be short-term (repayable within a year), or long-term (repayable over a longer period). Short-term loans are an intelligent method of building the creditworthiness of your business concern.
MSME refers to Micro, Small, and Medium Enterprises. These are enterprises whose annual turnover, along with investment in plant, machinery and/or equipment, does not exceed a well-defined threshold. An MSME loan is a type of business financing extended to smaller enterprises and start-ups.
What are their eligibility criteria?
The eligibility criteria for both differ according to each loan provider. A business loan is characterized by comparatively stringent eligibility criteria.
A crucial element for eligibility is the creditworthiness of the business enterprise. The loan provider would want to be sure that the amount being invested is recoverable. Market outreach can influence the credibility of a business concern, and established businesses can use this to their advantage. It is more probable for established businesses to have a better credit score than MSMEs.
Therefore, it is easier for an established business to secure business financing. Conversely, the documentation is comparatively simple and straightforward for MSME loans.
How do the loan amount and its tenure differ?
Business funding can be availed for a higher sum. You would get a more relaxed option for repayment. For instance, typical business funding could be for an amount over Rs. 1 crore, repayable over 5 years or more.
An MSME borrowing is for a lower amount, with a stricter repayment option. Nonetheless, they command a high turnaround time. Currently, the rapid advent of start-ups and other micro, small and medium enterprises, have coaxed many financial institutions to offer more comfortable terms.
What is the rate of interest charged on repayment?
The lender has an extended period to recover the interest. Business loan interest rates are therefore lower as compared to collateral-free MSME financing which is riskier.
What is the relevance of the EMI calculator?
Loan repayment is a tricky area and requires calculative planning. The business loan EMI calculator option is extended by lending enterprises to provide you with an estimate regarding loan repayment. The calculator will intimate the EMI you would be likely to pay towards the principal sum.
This feature need not be loan specific, and since MSME financing is a subset of business lending, financial institutions may extend this service for MSMEs as well.
—
This content is brought to you by Kunika Singhal.
Photo: Shutterstock
