Difference between Traditional Financing and Micro Financing

Difference between Traditional Financing and Micro Financing

Traditional financing

The term “traditional finance” refers to loans that are obtained by engaging a bank or any other type of financial organisation as the lending source. Traditional financing can refer to a wide variety of various loan kinds; nevertheless, the term “traditional financing” is most commonly used to refer to this specific kind of loan. Some instances include:

-Personal loans

-Financial assistance for companies (including commercial and residential loans)

-Loans for a variety of vehicles, including automobiles, residences, boats, and recreational vehicles

-Lines of credit secured by a homeowner’s equity (HELOCs)

Microfinancing

Microfinancing is a type of small business finance that is focused on fostering the expansion of existing small firms through financial assistance. It is possible for people as well as businesses to make use of it, and it typically entails the taking out of loans for extremely low sums of money. Startups and other types of small enterprises frequently turn to microfinancing when they are in need of funding to get their operations off the ground but are unable to gain access to larger sums of financing owing to regulatory limitations or other issues.

The benefits of microfinancing include:

-A simple method of gaining access to capital without the requirement of negotiating with banks or other significant financial organisations.

-Loans that are simple to obtain and are adapted to meet the requirements that you have specified.

-There are no payments of interest or long-term commitments required.

Lets see some of the major difference between Traditional Financing and Micro Financing.

Traditional Financing

  • Traditional financing is backed by assets like property, buildings, gold, and so on. This means that in order to get a loan or debt, a person must own assets like these.
  • Traditional finance is based on a single or many units.
  • Traditional financing can range from small to large sums.
  • Traditional financing has low interest rates in general.
  • Traditional financing is done for personal or commercial reasons.

Micro Financing

  • Microfinance is non-collateralized because modest debts or loans for the needy do not require collateral.
  • Microfinancing is a type of group finance.
  • Microfinance is always for a small cost.
  • The interest rate on microfinance is relatively high.
  • Microfinance is typically used to improve the livelihoods of the impoverished.

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