For MSMEs in India, access to the right financing can drive growth and stability. SME loans and business loans both offer funding, but they differ in terms of eligibility, purpose, and benefits.
In this blog, we’ll explore how MSMEs can benefit from the right loan to fuel their success in India’s growing economy.
What are Business Loans?
Business loans are designed to support established businesses in meeting various financial needs, such as launching new products, expanding operations, purchasing equipment, managing inventory, leasing additional space, or hiring employees. Short-term business loans, as the name suggests, are ideal for immediate funding needs. Additionally, timely repayment of these loans can help MSME owners build a strong credit history, making it easier to secure larger loans in the future.
What are SME Loans?
SME loans are tailored to support small and medium-sized businesses in scaling operations or managing day-to-day expenses. These loans can be utilized for purchasing equipment, restocking inventory, or boosting growth. Additionally, MSME owners can use the funds for hiring skilled employees, marketing their products, or covering legal and operational costs, ensuring steady growth and stability in a competitive market.
How to Apply for SME Loan
After selecting a lender for your MSME loan, the next step is to obtain their loan application form. Typically, you’ll need to provide details such as:
- Business name
- Date of establishment
- Registered and operating address
- Contact details (phone & email)
- Industry code
- PAN (Permanent Account Number)
- GST number
These basic details help the lender assess your MSME’s eligibility for the loan.
How to Apply for a Business Loan?
- Choose the Right Loan – Identify the type of loan that suits your business, such as MSME loans, working capital loans, machinery loans, invoice financing, or start-up loans.
- Prepare Required Documents – Gather essential paperwork like KYC, financial statements, business plans, and tax returns to ensure a smooth application process.
- Calculate Loan Affordability – Use an online loan calculator to check EMI amounts and ensure repayment is manageable.
- Submit Your Application – Apply online or offline with a lender of your choice, ensuring all details are accurate to avoid delays in approval.
You can also save all the hassle by knowing if you are eligible for a business loan or not. Kinara Capital makes it easy to check your loan eligibility in just one minute with a quick, hassle-free process. No collateral is required, and you can apply online with minimal documentation.
Grow your MSME with collateral-free business loans
Business Loans vs. SME Loans: Understanding the Differences
| Feature | SME Loans | Business Loans |
| Eligibility Criteria | Relaxed criteria; businesses with a minimum of 3 years in operation can apply. Basic GST, KYC, and turnover reports are sufficient. | Requires a strong credit history, market analysis, financial performance, and profitability records. Extensive documentation needed, including property details and financial statements. |
| Credit History & Collateral | No extensive credit rating or collateral required, making it accessible to smaller businesses. | Requires a good credit rating and collateral, which may be challenging for new businesses. |
| Interest Rates | Comparatively lower to encourage small and medium-sized businesses. | Generally higher, depending on factors like loan amount, tenure, and creditworthiness. |
| Loan Amounts | Typically designed for smaller loan amounts to support MSME operations and other such needs. | Suitable for businesses requiring larger funds for expansion and growth. |
Conclusion
Choosing between SME loans and business loans depends entirely on your business size, financial health, and funding needs. While SME loans are ideal for small businesses looking for quick access to funds with minimal documentation, business loans work better for larger, established businesses with strong credit history seeking bigger loan amounts. Understanding these differences allows MSME owners to make informed decisions and secure financing that best supports their growth journey.
For MSMEs in India looking for collateral-free business loans, Kinara Capital offers a seamless and fast digital loan process, customized to match the needs of small businesses. Whether you need funds to purchase equipment, expand your business, or manage, Kinara’s loan solutions are designed with MSMEs in mind. With quick disbursals, minimal documentation, and customer support in multiple regional languages, Kinara ensures that financing is accessible and hassle-free for MSME owners across sectors.
FAQs
1. Do SME loans have lower borrowing limits than business loans?
Yes, SME loans generally have lower borrowing limits compared to business loans. They are designed to meet smaller funding needs like equipment purchase, business expansion while business loans support larger expenses like expansion or infrastructure.
2. What is the main difference between SME loans and business loans?
The main difference is that SME loans are tailored for smaller businesses with relaxed eligibility and lower borrowing limits, while business loans are for established businesses requiring extensive documentation, higher creditworthiness, and larger loan amounts.
3. Which loan is better for expanding a business—SME loan or business loan?
For larger expansions, business loans are better due to higher loan amounts. For smaller-scale growth or operational needs, SME loans work well, offering easier eligibility and lower interest rates suitable for MSMEs.
4. Do SME loans offer government-backed benefits or subsidies?
Yes, many SME loans in India come with government-backed benefits like interest rate subsidies, credit guarantee schemes, and priority sector lending, making it easier and more affordable for small businesses to access financing.
5. How do repayment terms differ between SME loans and business loans?
SME loans usually offer shorter repayment periods with flexible options to match cash flow cycles, while business loans often have longer tenures, structured repayment schedules, and stricter terms based on loan size and purpose.
6. Are collateral requirements different for SME loans and business loans?
Yes, SME loans typically have relaxed or no collateral requirements, making them accessible to smaller businesses, while business loans often require substantial collateral, especially for larger loan amounts or longer repayment periods.
7. Can large corporations apply for SME loans?
No, SME loans are specifically designed for small and medium-sized enterprises. Large corporations do not qualify, as these loans are meant to support smaller businesses with limited turnover and simpler eligibility criteria.
8. Which loan type is easier to get approved for?
SME loans are easier to get approved because they have relaxed eligibility criteria, lower documentation requirements, and do not require extensive credit history or collateral, making them more accessible for smaller and newer businesses.
9. Do banks and NBFCs offer different terms for SME and business loans?
Yes, banks and NBFCs offer different terms for SME and business loans, with SME loans having lower borrowing limits, relaxed eligibility, and flexible terms, while business loans have stricter criteria and larger loan amounts.
10. How do I choose between an SME loan and a business loan?
Choose based on your business size, funding needs, and eligibility. SME loans suit smaller businesses needing lower amounts, while business loans are better for larger businesses requiring bigger funds with stricter eligibility and documentation.
