When it comes to funding a business, there are different types of financial instruments available. However, one of the biggest dilemmas most business owners encounter is the choice between a business loan and a microloan. While both seem like good options, microloans can come with some limitations. To make a better decision, it is essential to understand how business loans and microloans work.

Additional Read – 10 Benefits of Taking a Business Loan

Here is a comparison guide to help you understand why you should choose business loans over microloans: 

Major differences between a business loan and a microloan

  Business Loans Microloans 
Loan Amount You can apply for business loan up to a sum of Rs. 75 lakh. The loan amount for business loans is comparatively higher, which makes them ideal for bigger companies.    Microloans, on the other hand, offer a smaller capital. As the name suggests, these loans typically offer lower values of up to Rs.1 lakh. They can be inadequate for funding a business. 
Loan Tenure An instant business loan offers a comfortable tenure ranging anywhere between 12 and 36 months.  Since the loan amount for microloans is quite low, they offer a smaller loan tenure. This can make it tougher to repay the loan. 
Rate of Interest You can expect a competitive business loan interest rate when opting for these loans. With long tenures and considerable loan amounts, lenders generally offer affordable interests.  The loan tenure and amount are much smaller. Lenders, hence, tend to charge higher interest rates to make more profits. 
Use of the Loan Lenders allow you to use a business loan as you like. It can be spent on refinancing, purchasing new equipment, or hiring. There are no restrictions and interference from the loan provider. You have a limited scope of utilization with microloans. The lender may only allow you to use the money for the intended purpose and in no other way. 
Suitability  Any company, big or small, can use a loan for business to finance its capital needs. The loan amounts suit every enterprise’s requirements, and the flexible tenures and attractive rates of interest make it easy to settle the loan with time.  Microloans, however, may be suitable for only small businesses. The loan amount is very small at Rs. 1 lakh. Moreover, these loans are not flexible in terms of their use, tenure, and interest. 

Additional Read – Tips for Getting your Business Loan Approved in First Attempt

Conclusion 

The ultimate decision to choose between the two lies with you and will depend on your company’s needs. However, when you look at the overall costs involved in both these loans, opting for a business loan can be a better deal. It offers better features and usability at a more affordable cost. It is also more reliable as business loan lenders are big and reputed banking companies and non-banking financial companies (NBFCs) as opposed to small non-profit organizations that offer microloans.

If you are looking for quick business loans, reach out to Tata Capital. With a tenure up to 36 months, Tata Capital offers loans for up to Rs. 75 lakh.

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