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Personal Loan vs Business Loan

Small Business Loan v/s Personal Loans

Last Updated 09th Dec 2021

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 only be taken for commercial purposes.
  • Personal loans are unsecured, while business loans can be both secured and unsecured.
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Difference Between Personal Loan and Business Loan

If you plan to expand your business or need funds to buy capital like machinery, plant or pay bills and rent, a business loan is an instant option that may come to your mind to fulfill your business needs. However, it is essential to evaluate other options such as a personal loan or credit card. Below mentioned are the key differences between personal loan and business loan.

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.

Features and Benefits

  • Flexible Use : You can use funds availed as a personal loan for diverse business needs such as purchasing raw materials, plant and machinery and managing working capital expenses.
  • Minimum Documentation : A personal loan can be availed with minimum documentation like identity proof, residence proof and income proof.
  • Easy Approval : Banks easily approve your personal loan in a few hours depending on your credit history. If you have a good existing relationship with the bank, you may also get preapproved personal loan offers.
  • Repayment Tenure : Ranging from 18 years to 65 years, you can repay the personal loan flexibly.

Business Loan

A business loan, both secured an unsecured can boost your business by helping you avail funds to meet various business requirements. These can range from expanding business, improving infrastructure or meeting working capital expenses.

Features and Benefits

  • Higher Loan Amount : A business loan can help you avail loan amount of upto ₹ 1,00,00,00,000. Thus, you can have funds for large capital.
  • Collateral : You can avail of a business loan both as a secured and unsecured loan. The rate of interest varies for both types of business loans.
  • Usage : A business loan can only be availed for fulfilling business needs.

Differentiate Business Loans from Personal Loans

You can determine the difference between personal and business 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 ExperienceNilMin 12 Months
Minimum Age Requirement18 Years to 65 Years21 Years to 65 Years
Income Requirement₹ 1,200₹ 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

Getting a Business Loan vs Personal Loan

Getting a personal loan may be easy and quick. Your loan can be approved in a few hours if you are an existing bank customer with a good CIBIL score. In addition, the process of approval is fast, with the need for less documentation. Contrary to a personal loan, a business loan may take some time for approval. In addition, the process of getting a loan may be lengthy. In addition, you may also be required to submit various documents related to your business.

Applying for a Business Loan

You can apply for a business loan at the bank’s website or visit the nearest bank branch. To get the best business offers from top banks, you can apply for a business loan from MyLoanCare at . The online marketplace offers customised personalised assistance regarding loan approval and application.

Applying for a Personal Loans

With MyLoanCare, apply for a personal loan and get attractive offers from top banks. The online marketplace also gives you an option to compare personal loan rates and charges from leading banks and NBFCs and instant personal loan mobile applications. In addition, you can also avail of other benefits such as cashback upto Rs. 1000 on loan disbursement.

Advantages and Disadvantages 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

Advantages and Disadvantages 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.

Should I Get a Business Loan or a Personal Loan?

Personal and business loans have similar characteristics that it becomes difficult for borrowers to choose the right product. For example, you may opt for a personal loan if you are looking for instant approval on your loan with less documentation. On the other hand, choosing a business loan may be the right choice to get tax exemptions and deductions.

Opt for Business loans in the following circumstances:

  • Have an existing and established business enterprise and want to upgrade the existing infrastructure.
  • Have required collateral to pledge as security for a secured business loan.
  • Have specific business requirements.
  • You need an advance on any invoice.

Opt for personal loans if :

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

Thus, choosing 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 marketplaces like MyLoanCare.

FAQs

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. In addition, if you are eligible for a personal loan from any financial institution, 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 for a business.However in situations where you are looking for options with much lower interest rates you can try for loan options such as Loan Against Property or personal loan.

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.

Can I use a personal loan to start a business?

Yes, a personal loan has no end-usage restrictions and thus you can avail the loan to start a business but you must be a salaried applicant with a regular source of income.

Why are business loans cheaper than personal loans?

A personal loan is an unsecured loan and thus has a higher rate of interest. On the other hand, you can avail secured business loans without any requirement of security or collateral.

Is a business loan the same as a personal loan?

No, a business loan is different from a personal loan. While, a business loan can only be used for business purposes. A personal loan on the other hand has no end-usage restriction and can be used for both personal and business uses.

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