Finding it difficult to choose between regular loans and micro loans? If yes, you need to gain complete insight regarding small business loans and micro loans. Check out the three most important differences between them to choose the best option for yourself.
Loan amount One of the main points of comparison between a normal business loan and a microfinance loan is based on the loan amount that can be approved by the financial institution. Microfinance loans are small sums of money borrowed to cover small business expenses. A microfinance loan cannot be used to borrow more than one lakh rupees. However, if you can avail of a business loan, you can always go for a small amount or a large amount, as per your expenses. Business loan amounts can also range from 1 lakh to crores. Therefore, it is important to decide the loan amount required based on your business needs. If you have a need for 1 lakh rupees, you can definitely go for a microfinance loan. However, for a larger amount, you need to choose a small business loan. Apply for free credit score check. Interest rate Another point of difference between normal business loans and microfinance loans is the rate of interest. When you take any kind of loan from the market, this is one of the most important factors. If compared, microfinance loans have a high rate of interest in comparison to normal business loans. Therefore, if you take a microfinance loan, the loan cost as per the business loan calculator will be higher than a normal business loan. This is because micro loans are usually short-term loans while business loans are considered long-term. Funds are no longer being used Micro loans are also different from business loans on the basis of the end usage of funds. Business loans can be used for anything related to business. It is a completely flexible source of funds that can be used for paying off bills, buying inventories, buying machinery, working capital, or paying staff. However, in the case of microloans, business owners are not allowed to pay off any kind of business loan with the help of the microloan. It can only be used to buy equipment and machinery, pay rent and salaries, and buy supplies. Must Read : How to Use a Business Loan EMI Calculator? Wrapping up Small business loans are much more flexible and affordable. If you compare it with a micro loan, business loans are a much-preferred option.
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Business loans are not very affordable in India. However, small and medium scale businesses are always in need of a smooth source of funds for managing business expenses. Such small ventures need to take a business loan to manage small and big-ticket business expenses. However, at the time of taking a business loan, the priority should be getting an affordable rate of interest. In India, the average interest rate on a business loan is 16.6%. Since it usually ranges from 11.2% to 22%, the business loan interest rate is completely variable depending upon a couple of factors. If you need the best loan, you need to make sure that you choose the right loan provider and meet all the business loan eligibility criteria. Here are some of the best ways by which you can get an average rate.
Get a good business plan One of the most effective and easiest ways of getting a low business loan interest rate is by having a good business plan. If you draft a business plan well, it is used as a convincing element for the loan provider. If a business can determine all its long-term strategies and goals, it builds trust and credibility. Therefore, financial institutions find it important and worth it to invest in such a business with a good prospect in the future. Get a good business credit score It is very important to choose the right loan provider. If you want a low rate of interest, it is important to get a good business credit score. Credit score determines the creditworthiness of the business and business owner. Based on the business credit score, the financial institutions decide whether to approve the loan request or reject it. Therefore, if you are planning to get an affordable business loan, you need to build a good credit score with the right activities. Maintain a good cash flow statement No financial institution in the country will be willing to invest in a business that has a financial downtown situation. Make sure your cash flow statement is not having too much burden on the credit side. If you have a lot of debt in the market, it will be difficult for you to get new loan approval. Businesses that are already in too much debt, find it difficult to get a business loan approval. An emergency fund is important One of the main factors that can get you a business loan interest rate in an affordable manner is the emergency fund. A good business always maintains an emergency fund. If you show your loan provider that you have an emergency fund, it will be easy for you to get a business loan approval and a low rate of interest. Read : Loan Talks Finishing up Choose the right business loan interest rate while borrowing. Compare all the available financial institutions to get an affordable business loan for your business. |
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February 2022
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