Difference between SME Loan and Business Loan: Which One to Choose?

Difference between SME Loan and Business Loan: Which One to Choose?

Business needs financial support to emerge and grow and there are various options available in the marketplace to seek the required financial help.

Micro, Small and Medium Enterprises (MSMEs) being contributing majorly to the economy of the country and showing consistent growth, several MSME loan schemes have been launched by the government to provide financial help.

MSME loans/SME loans are different from the typical Business Loans available in the marketplace.

For a company to choose between a business loan and MSME loan/SME loan to fund their business, it is essential to understand the difference between them which have been detailed as follows:

Type of Business

SME loans/MSME loans are made available for start-up companies and small & medium-sized companies.

Whereas business loans in India are made available only to the already established companies. Start-ups are not provided with business loans.


Start-ups and SMEs can avail MSME loans to start their new business venture or to fund their business needs like day-to-day expenses, recruitment purposes, buying of inventory or machinery, marketing purposes, etc.

Whereas business loans in India are made available for companies to fund its business needs such as business expansion plans, market diversification plans, etc.

Eligibility Criteria

The MSME loan eligibility criteria are simple, easy and the documents required are also minimum.

Whereas the business loan eligibility is comparatively stringent and the documents required for business loans are cumbersome. Moreover, the company needs to have a high credit score and the business should be profitable.

Amount of Loans and Tenure

MSME loans granted are generally small and also the tenure for the loan repayment is also less. But there are certain financial lenders making available flexible loan repayment options to MSMEs.

Whereas the loan amount granted in Business loans are higher and also the tenure for the loan repayment is more.

Interest Rate

The MSME loan interest rate is high compared to the business loan interest rate.

Type of the Loan

MSME loans are MSME loan without collateral whereas Business Loans being granted high loan amount are secured loans. Thus, the companies need to pledge collateral as security against the business loan being granted.

Laon Disbursal Time

The MSME loans are instant business loans and the amount is disbursed within a few working days of the MSME loan application. Whereas this is not the case in Business Loans.

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Credit Score

Credit Score is the essential factor considered by the financial lender while deciding the loan amount being granted and also the interest rate in case of Business Loans. A company’s healthy business nature, its stability and repayment capacity is reflected by the credit score. Thus, the company must have a high credit score. Whereas credit score may not be that important in getting an MSME loan.

To summarize, a company must first weigh the pros and cons of both the Business Loans and the SME loans/MSME loans to choose amongst them. And then check and compare the various Business loans or MSME business loans offered by several financial institutions in the market, its interest rate, its processing & charging fees, eligibility criteria, amount of loan being granted, tenure for loan repayment, loan disbursal time, etc. and make a wise choice.


What is MSME loan?


Who is eligible for MSME loan?

Entrepreneurs, Start-up companies, Micro, small & medium enterprises, a company (be it private limited, limited liability partnership company, partnership or

proprietorship from), etc is eligible for MSME loans.

How to get an MSME loan?

MSME business loans/MSME loans are instant business loans where MSME needs to upload all the documents required by the financial lender on its website along with filled application form. And MSME loan is easily made available within a few working days from the application.

What is MSME loan eligibility?

MSME loan eligibility is as follows:

  • The company should be having a business for more than six months.
  • Age of the applicant should be 25 years of age and above.
  • The investment in the manufacturing sector and service sector should be Rs. 10 crores or less and Rs. crores or less respectively.

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