When you plan to start a business the first thing that comes in the mind is funds. Every business needs funds to grow better. To overcome this situation business loan and micro loans are available. But the major difference is that if you are going to start a micro or small scale business then a business loan might not help you out. To avail business loan you will require a lot of documentation, collateral, and proofs. In this case, there are plenty of nonprofit organizations are available in the market who provide micro loans for small scale businesses. Thus micro loans play a vital role in many businesses and in India almost 70% of businesses are running through these loans. Here I am sharing some major differences between the two.
Loan Amount
The loan amount completely depends on your business requirements and business profile. You can acquire as little as 1 lakh through micro loans or can as high as required through a business loan. Also, you should plan well before applying for any kind of loan that what amount will be appropriate to run your business successfully.
Rate of Interest
Interest rate plays an important role in the loan process because through this, it will be decided that what amount you are going to pay finally. So you should choose a loan with a lower interest rate. Generally, you can avail a micro loan with an interest rate ranging from 8% to 16% and a business loan with the interest rate ranging from 7% to 9%.
Tenure
This is also one of the most important factors that affect the whole loan amount. So you should choose the tenure of your loan that provides you comfort to repay the loan easily. There are plenty of lenders are available in the market that facilitates with plenty of options regarding your tenure so you can choose one of them. Also, if you are going for a micro loan then you can acquire them for short term only. In the case of business loan, you can avail the amount for the long term.
Usage of Funds & Purpose of Loan
This is also a major difference between these two types of loans. In both cases, if you are acquiring a loan for business operations like salary disbursement of employees, purchasing types of equipment, paying rent are allowed as you can use your loan for these purposes. If you are acquiring a loan to paying off your business debts then in case of business loan it is allowed but in case of micro loan it is not allowed. So choose the loan for your business wisely.