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Business loan vs Personal loan – Which is best for business

  • 02-Apr-2022
Business loan vs Personal loan – Which is best for small business

What is a Business Loan? 

A business loan provides funds to businesses to maintain all the expenses of the organization. It is provided by various banks, financial institutions, or NBFCs. Small business loans can be secured or unsecured loans, based on the loan amount, the relationship between borrowers and lenders, and the type of loan. 

Features and benefits of a Business Loan

High loan amount The borrower can take a high loan amount of up to Rs. 1 crore. The amount of loan can be provided based on your business requirements  
Hassle-free application process It requires an easy applicational process and less documentation. 
Repayment loan tenure The flexible repayment tenure for a business loan is up to 7 years. 
No collateral required  A Business loan is a collateral-free loan. Therefore, there is less chance of losing their assets if they default while repaying their loans. 
Easily accessible Many lenders provide small business loans to their borrowers, it is easy for the corporation to help the need of their business. 
Quick disbursal The business person can avail of the business loan by both methods i.e., online and offline. Both methods help you with the quick disbursal 

Eligibility Criteria of a Business Loan

Eligibility criteria depend on various factors such as the age of the borrower, business turnover, repayment history, creditworthiness, etc. 

  • The age criteria of an applicant should be between 25 to 65 years of age.
  • Business continuity should be a minimum of 3 years.
  • Cash flow should be positive in the operation of the business.
  • Income Tax Return must be filed for at least 1 year.
  • Sales or business turnover should be audited by registered Chartered Accountants.
  • The borrower can get a minimum loan amount of Rs. 50 lakhs and a maximum of Rs. 1 crore.

Advantages and Disadvantages - Business Loan

Advantages  disadvantages 
An applicant can state tax benefits for paying EMIs of a business loan. The shortfall of flexibility with repayment tenure. 
It can be paid back over a higher repayment tenure. The borrower requires a strong credit profile. 
You can secure a high amount with a business loan. It requires extensive documentation during the loan application. 
The borrower with a good CIBIL Score can get a relatively low rate of interest. The borrower might lose assets if you default on the payment of the loan. 

 Also read: - Facts About Business Loans and Their Benefits

What is a Personal Loan? 

A personal loan is an unsecured loan. It is offered to the borrower for personal expenses such as unplanned medical expenses, spending on a wedding, necessary home renovation, paying off bills, purchase of gadgets, funding a holiday, finance in education, etc. 

Features and benefits of a Personal Loan

Less paperwork  It requires less documentation as the process for applying for a loan is online. 
Flexible repayment Lenders provide the option of flexible repayment that ranges up to 60 months. You can choose the tenure period as per your requirements. 
For various purposes It can be offered for several purposes like weddings, higher education, emergency medical expenses, etc. 
Quick disbursal After the approval of the loan, the loan should be disbursed in your account within 4 to 5 days. 
High loan amount You can get a maximum loan amount of up to Rs. 25 lakhs depending on various factors such as work experience, age criteria, repayment capacity, financial profile, etc. 

Eligibility Criteria of a Personal Loan

Eligibility criteria depend on many factors like monthly salary, total work experience, age of an applicant, business income, credit score, etc. 

For self-employed individuals: - 

  • The minimum age of the borrower is 21 years and the maximum age is 68 years of age.
  • A minimum of 2 to 5 years is required to do business.
  • The Credit score must be 750 or above.
  • Nationality should be the resident of India.

For salaried individuals: -  

  • The minimum age of the borrower is 20 years and the maximum years is 60 years of age.
  • The credit score must be 750 or above.
  • The minimum salary should be Rs. 25,000.
  • A minimum of 1 to 3 years of work experience is required for a salaried applicant.
  • Nationality – Resident of India

Advantages and Disadvantages of a Personal Loan

Advantages  Disadvantages  
It does not require any security or collateral as it is an unsecured loan. The rate of interest for a personal loan is generally high as it is an unsecured loan. 
There is a speedy disbursed of a loan amount. The borrower can secure less loan amount as compared to a small business loan. 
Personal loans require less documentation. You should not claim tax benefits on the payment of EMI for a personal loan. 
It can be used for multiple purposes. It requires to be paid over a short duration. 

 Also read: - Compare Lowest Interest Rate for Personal Loan by All Banks

Therefore, knowing the facts financeseva allows you to choose the best deals for business loans and personal loans. 

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