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3 Differences Between An Sme Loan And A Business Loan
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Even though business loans are considered to be a part of all the types of SME loans, there are a number of differences between the both. SME loans are offered to businesses to help them purchase new land or machinery to help their company grow and increase their profits. However, fundamentally, there are a number of factors which make a business loan differ from the other SME loans financial institutions offer. The three major differences between an SME loan and a business loan are:
Loan amount offered
Financial institutions offer business loan to enterprise up to the amount of 35 lakhs. Other SME loans however provide higher amounts to businesses as loans between 5 to 10 crores. A business loan can be used by the business for any short term requirements. SME loans however are used to purchase machinery, land or equipment. This is why financial institutions offer higher amounts for SME loans.
The tenure for a business loan which is offered by a financial institution is roughly five years. The tenure for SME loans however range from 6 to 15 years depending on the type of loan chosen. Since the amount loaned is higher in the case of SME loans, enterprises are offered a longer tenure to help make the repayment of the loan easy. Small and Medium sized enterprises are given a longer duration so as to not financially pressure them and allow the repayment process to be simple.
All SME loans are secured while business loans are unsecured loans. Business loans offer a lower amount of finance and are hence an unsecured type of loan. SME loans however offer a large amount as finance to small and medium enterprises. For a plant and machinery loan the plant or machinery purchased will be kept as security by the financial institution. In the case of medical equipment loans, the equipment which has been purchased by the company will be the security got the loan. For Property term loans, the plot of land purchased is kept by the financial institution until the loan has been repaid. Once the enterprise repays the loan in full, the financial institution will transfer the ownership to the enterprise. In cases where the loan cannot be repaid, the institution will simply sell the property, equipment or machinery to recover the loan amount.
A business loan is a short term unsecured source of finance. Enterprises should only use such a loan to help improve their business and not use the finance to repay bad debts or loans. Doing so will financially burden the company in future. Depending on the company’s financial needs, one can apply or any of the available loans with ease.
Author Bio :
The author is a seasoned writer on finance topics and she articulates aspects that are important to people availing the SME loan facility. She writes about a variety of topics covering the home loan documents, rates & business loan that help to make the best decision.
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