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Personal Loan vs Business Loan

Small Business Loan V/S Personal Loans

Last Updated 25th Jun 2021

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ParametersPersonal LoanBusiness Loan
Interest Rate10.25% 14.00%
Processing FeeUpto 2% of loan amount Upto 3% of loan amount
Loan Tenure84 Months84 Months
Lowest EMI per lakh ₹ 1,673₹ 1,874
Prepayment ChargesNil to upto 5%Upto 5%
  • Personal loans do not have an end-usage restriction, while business loans can be taken for commercial purposes only.
  • Personal loans are unsecured, while business loans can be both secured and unsecured.
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What is a Personal Loan?

Personal Loans do not have an end-usage restriction, and it is an unsecured loan, meaning applicants do not have to provide any collateral as security.

Getting a personal loan is a perfect way to receive quick financial support during financial emergencies. In addition to arranging cash, there are various benefits that applicants can get access to by availing of a personal loan. You will not have to guarantee a personal loan for all of your personal properties. People take personal loans for many reasons, unlike most secured loans such as home loans, education loans, car loans, etc.

What is a Business Loan?

Business Loan is offered for commercial purposes only. Applicants can get a business loan to meet the financial requirements of their business. The primary purpose of business loans is to satisfy a company's financial needs. Borrowers can utilize this loan amount for acquiring working capital, inventory, machinery and other business development purposes.

Difference Between Business Loan and Personal Loan

You can determine the difference between a business loan and a personal loan based on the following parameters:-

ParametersPersonal LoanBusiness Loan
CollateralNot requiredRequired in case of secured business loan
DocumentationMinimal Documentation Documentation process is detailed, in comparison to personal loan
Work ExperienceMin 6 MonthsMin 12 Months
Minimum Age Requirement18 Years to 60 Years21 Years to 65 Years
Income Requirement₹ 10,000₹ 12,500
Annual Turnover Nil₹ 1,00,00,000
Loan Amount₹ 75,00,000₹ 1,00,00,00,000
End-usage RestrictionNo end-usage restrictionOnly for business purposes
Interest rates10.25% to 36.00%14.00% to 30.00 %
Tenure84 Months84 Months
Tax BenefitsNo tax benefitsTax exemption and deduction advantages available

Advantage and Disadvantage of Personal Loan

The benefits of a personal loan are listed as follows:-

  • The application process is quick and hassle-free
  • No collateral required
  • You can use personal loans to consolidate all your existing debts
  • Suitable for emergency fund requirement

The disadvantages of a personal loan are listed as follows:-

  • Since personal loans are unsecured, the interest rates are comparatively high
  • The approved loan amount for a personal loan is relatively less compared to other types of loans
  • No tax deduction and exemption benefits
  • To be eligible for personal loans, you need to have a perfect credit score

Advantage and Disadvantage of Business Loan

The advantages of availing of a business loan are:-

  • With business loans, applicants can avail of tax benefits of exemption and deduction.
  • Self-employed and businesspersons have a better chance of getting a business loan as personal loans are specifically designed for salaried professionals.
  • Business loans are available in different forms, such as term business loan, standard business loan, etc. Potential borrowers can avail of any of the variants as per their needs

The disadvantages of availing of a business loan are:-

  • Not all companies are eligible for a business loan. Business owners must make sure that they have a detailed and reliable business plan to convince the lenders.
  • The business loan application process is lengthier compared to a personal loan. The lenders will thoroughly inspect the business credentials, previous financial statements, profit loss balance sheets, and logistical costs.
  • Usually, for availing of business loans, borrowers have to pledge collateral as security.
  • Banks and financial institutions keep 70-80% margins for the loan amount offered in a business loan.

What’s Better, a Personal Loan or Business Loan?

Personal loans and business loans have such similar characteristics that it becomes difficult for borrowers. If the convenience, instant approval, less documentation is the primary concern, then a personal loan is the right choice. If tax exemptions and deductions, and hefty amounts are the primary concern, then the business loan is a better-suited option.

Opt for Business loans if

  • A borrower has an existing and established business enterprise and wants to upgrade the existing infrastructure.
  • If the borrowers have required collateral to pledge as security for a secured business loan.
  • If the borrowers have specific business requirements
  • If the borrowers need an advance on any invoice

Opt for personal loans if

  • If borrowers have no existing history of business and are about to start a new venture
  • If borrowers do not have assets to pledge as collateral
  • If the credit score and history of borrowers is excellent.
  • If there is a dual purpose of covering the business and personal expense.

In the end, whether a borrower should prefer a personal loan or business loan depends on the individual’s requirement. If you are still in a dilemma and confused about choosing, take help from financial experts or online financial market places.


Can you use personal loans for business purposes?

Yes, you can use a personal loan for business purposes. But most of the lenders do not have a standard policy for giving out personal loans for business purposes. But if you are eligible for a personal loan from any financial institution, then there are no legal challenges to stop you from doing that.

Which loan is best for business?

Usually, a business loan is the best option for arranging funds. But suppose you are looking for options with much lower interest rates. In that case, you can try for loan options such as Loan Against Property or personal loan if you fulfil the eligibility criteria.

How much loan can I get for a small business?

You can get up to ₹ 100 Cr. However, there is no fixed amount. Some banks may even give more than the maximum limit if you fulfil the eligibility criteria.

What is the eligibility for a business loan?

You have to be at least 21 years with a minimum cibil score of 650. The minimum business existence required for self-employed is 21 years, and for businesspersons, it is 21 years with a minimum turnover of ₹ 1 Cr . You should also have the last two years of the Income-tax return and bank statement for the last six months.

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