Personal Loan Vs Business Loan: Which is Better?

Personal Loan Vs Business Loan: Which is Better?

If you want to expand your business or need funds to purchase machinery, electronic devices, or tools for the business, having funds is important to start your business. 

 A business loan may be the first option that springs to mind when it comes to financing a firm, many entrepreneurs believe that a personal loan is a better option.

Is it better to take a personal loan or a business loan? Which is the preferable option for funding your company’s needs? Let’s start with the basics to distinguish between the two.

Personal Loan

A personal loan is an unsecured loan that can be used for almost anything. A personal loan is used for various purposes because it is an unsecured kind of loan. In this loan, without any collateral, you can have access to it immediately. At the time of financial crunch, you can get quick access to a personal loan.

Even if you have enough money, you may find yourself in need of additional funds in certain situations. A personal loan not only offers you instant cash but also has a number of other benefits. A personal loan does not require you to put up any of your assets as security. Instead of borrowing, applying for a personal loan 

Unlike other secured loans like home loans, car loans, or education loans, personal loans can be used for various purposes.

Advantages of a Personal Loan

  • Leisurely application procedure
  • For securitization, you will not need to offer any collateral
  • Basic documents are required for this personal loan
  • It can be used to consolidate all of your previous debts into a single payment.
  • Excellent source of cash in a crunch.

Disadvantages of a Personal Loan

  • Highly payable interest
  • The amount accessible through a personal loan is much less than that available through other sorts of loans.
  • A credit score is required to qualify for a personal loan.

Business Loan

A business loan is given for the aim of starting a business. A business loan can be used for a variety of purposes, including funding your startup, paying salaries, growing your existing business network, and any other financial needs. On the other hand, obtaining a company loan is difficult due to tight eligibility requirements and extensive documentation.

Advantages of a Business Loan

  • You can get tax benefits
  • Low interest to pay
  • There are various types of business loans such as Capital, Loan against Property for SME, Invoice Financing, Equipment Financing, Business Loan for Women, Term loan, Start-up, and many.

Disadvantages of a Business Loan

  • Business loans are not provided for all businesses. 
  • You must entice loan lenders to grant you a loan as well as a detailed company plan.
  • It takes a long process to provide before sanctioning the business loan.
  • Detailed documents must be provided to process the sanctioning.
  • It verifies all previous records, profits, expenses as well.  
  • Banks and other financial institutions will only provide you around 80%of your sought business loan amount.
  • collateral as security is mandatory

Personal Loan Vs Business Loan

Both the loans have advantages and disadvantages. Now, we shall discuss it in detail by comparing it based on their Sanction process.

Application Procedure

Personal Loan- Instant sanction and require minimum document 

Business Loan- Lengthy process for sanction and requires all business-oriented documents.

Collateral

Personal Loan- It is unsecured, which means you need not something pledged as security

Business Loan-   You need to submit some sort of collateral.

Interest Rates

Personal Loan-  It can meet your personal needs such as paying an old debt, taking a vacation, automobile, etc. We tend to pay high interest.

Business Loan- The primary goal of a business loan is to assist you in meeting your financial obligations. Because it is a secured loan, the interest rates are lower, but you must put something up as collateral.

Loan Tenure

A personal loan is a short team and a business loan offers both short and long term.

Eligibility Criteria

A Personal loan is based on income.

A business loan is Lenders measure your creditworthiness by looking at both your personal and business credit scores. You may also be required to furnish documents such as bank account and accounting records, company strategies, and so on.

Tax Benefit

In a Personal loan, there is no tax deduction and in a Business loan, the tax deduction is available.

How can we decide which is the better option, given both personal and corporate loans have advantages and disadvantages?. After you’ve comprehended the distinctions, you’ll be able to choose which sort of loan is most suited to your needs.

Leave a Reply

Your email address will not be published. Required fields are marked *