There are different types of loans available in the market as per the needs and requirements of the borrower. Lack of awareness about the intricacies of different types of loans can cause confusion and can land the borrower in a huge trouble. In this article, we have listed the differences between SME loan and start-up loan so that you can apply for small business loans online with total confidence.

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Unique SMEs, unique needs:

Loans for SMEs (Small and Medium Enterprises) are usually in the range of Rs. 1 lakh to Rs. 50 lakh. Banks and NBFCs give this type of loan to those who want to start a new micro business or strengthen existing business. Basically, an entrepreneur intending to start a small or medium enterprise or who already runs a small or medium business is eligible for SME loans.


In order to avail a SME loan, the borrower’s age must be between 25 to 65 years. The business must have been profitable for three previous years and have a record of filing taxes. The business must show signs of profitability and growth. The loan tenure is usually between 12 and 36 months. Some lenders allow tenure to run up to 60 months.

The interest rate on SME loan usually ranges from 16% to 24%. The actual rate depends on the financial and business profile of the SME or MSME. Special incentives and offers are given. For instance, a few banks or NBFCs provide loans to any low-income generation businesses run by women within the parameters of the loan eligibility criteria. In any SME or MSME loan, the repayment is in EMIs (Equated monthly installments).

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New ideas, new start-ups:

Financial institutions also provide financial assistance to startup companies. Startup companies can avail a host of asset-backed loans, term loan or working capital loan based on their requirements.

In order to avail a startup loan, the business should be eligible and certified as a ‘Start-up’ by the concerned government authority as per Start-up India scheme. The financial institutions generally provide startup loans up to Rs. 5 crore for innovation, development, deployment of a new product, processes or services etc. While collateral is not mandatory, banks can ask for a personal guarantee of promoter directors, partners if any.

Few lenders also provide startup loans in form a line of credit or for equipment financing. A line of credit works like a credit card; no security is required but interest rates are higher. In the case of startup, loans given for the equipment financing, the tools bought when starting the business is pledged as collateral. Hence, the interest rate charged is lower.

Points to consider before applying for any kind of business loan:

Apart from comparing interest rates, one must carefully consider other different charges associated with SME loan and start-up loan. Find out the processing fees, foreclosure charges and any other amounts that a borrower may be required to pay in the lifetime of loan servicing tenure.

Also, before applying for a business loan, knowing the repayment capacity and EMIs is important. Use business loan EMI calculator by visiting the website of online aggregators.

Now that you know the differences between startup loan and an SME loan, you can easily apply for the loan with confidence. Compare interest rates and other charges, and choose the one which meets all your requirements.