Personal loans and business loans are two different products which are meant for different purposes. However, many times people avail personal loans to meet their immediate business needs. In that context, it is important to understand if that’s a right thing to do or not. And if yes, what all circumstances make it right to opt for a personal loan instead of a business loan. However, let’s first learn a bit about these two lending products.
A business loan can be of multiple types, ranging from merchant cash advance, equipment finance, line of credit, short term loan to more. This loan is meant for a certain purpose, which in most cases is to improve business operations, meet certain business expenses or to scale up. The terms and conditions associated with the business loan, amount offered and the tenure is fixed depending upon the exact purpose of loan and borrower’s profile. Although the interest rate is competitive, the lender asks for some collateral as security.
As is evident from its name, this type of loan is meant for individuals who wish to meet certain immediate personal finance needs. It could be for anything like funding a vacation, laptop purchase, renovating home, medical expenses etc. The lender is not bothered about the purpose you use the loan amount for. The tenure is comparatively shorter and the interest rates are also marginally lower than business loans. In general, there is no collateral required as security for personal loans, which is a major reason behind their popularity.
When should you take a personal loan for business?
Your decision of taking a personal loan for your business needs will depend on many things, and hence must be taken carefully. While most enterprises take business loans to meet their finance requirements, you can also opt for a personal loan in the following circumstances:
Small requirement – If the amount of money you need for your immediate business needs is not huge, you can opt for a personal loan. The application process and disbursal is mostly hassle-free and you don’t require the same kind of extensive documents that are needed for a business loan.
Tenure and repayment - It might make sense to avail a personal loan if you need it only to tide over some temporary business situation. Although there are business loans to handle such situations too, the ease with which you can avail a personal loan makes it an attractive product for everyone. Furthermore, if you’re confident of repaying the borrowed amount within, or ahead of time, it would be better to go for a personal loan only.
Collateral – One of the biggest advantages of taking a personal loan is that you don’t need to submit any collateral. Business loans on the other hand are usually secured in nature. Hence, if you can’t furnish a collateral, personal loan might be the product of choice for you.
Processing time – Please note, it takes time for a business loan to get approved and the money to show up in your account. Additionally, many documents are required for processing of a business loan, such as business plan, account books and more. It usually takes some time to get all the documents in order and to finally get a business loan sanctioned. If you require money urgently and can’t afford to wait that long, you should avail a personal loan instead, which can be sanctioned and disbursed within couple of days. It all depends on how urgently you need the money.
If you have pondered over all these points and are sure that you need a personal loan for your immediate business needs, visit GoSahi.com today and compare the best offers from top-rated lending establishments in India.