Understanding the Difference Between A Personal Loan and A Business Loan
Personal loans and business loans are two of the most popular financing tools. There are different forms of loans, such as standard, instant, cash, and more. A cash loan is one that the borrower receives in cash. This differentiates it from leases, installment loans, and overdraft loans. Cash loans may be given as a personal loan to an individual or a business loan.
Business loans provide a more comprehensive range of lending options than personal loans, as well as more significant loan amounts, more affordable rates, and longer durations. However, you’ll probably need to be in operation for a year or two with a consistent monthly profit to be eligible for a business loan. Personal loans are generally simpler to apply, especially if you have a reliable source of income and strong credit history. However, borrowing levels are constrained, and payback times are condensed. Moreover, with the advent of digital lending, instant personal loan apps have made it much easier to apply for a personal loan.
Instant personal loans are unsecured loans with speedy approval times and practically instant disbursals that require minimum verification. Some of these loans are disbursed instantaneously, only minutes after the application is submitted.
Read on to understand the difference between a personal loan and a business loan.
What is a business loan?
A business loan is any financial support given to businesses by banks, financial institutions, or NBFCs. Different kinds of business loans are offered by different lenders, and they cover the diverse needs of a company. Among the popular ones are
- Equipment Financing
- Line of credit
- Merchant cash advance
- Overdraft facility
- Short-term loans
- Working capital loans
What Is A Personal Loan?
A personal loan is an advance that is given with little to no documentation and without collateral. The money from this loan can be used for multiple purposes. You must pay it back according to the terms set forth by the bank, just like any other loan. Typically, this may be paid in simple equivalent monthly installments over a period of a few months to a few years.
These days, personal loans are also given as quick cash loans. Cash loans are a type of short-term financing option for customers. They are personal loans with terms of more than two years and amount of less than 2 lakhs.
As the need for quick cash loans grows, several financial institutions and NBFCs have stepped forward to offer quick cash loan schemes through an efficient online process. Fast cash loans are less complicated and include a more straightforward approach than a typical method of getting a loan, which is entirely offline and time-consuming.
Business Loan versus Personal loan: How They Differ?
Here are four things to consider when deciding between personal and business loans.
1. Interest Rates and Collateral
No security is required to avail a personal loan. However, you must show that you have a stable monthly income to make your monthly EMI payments on time. Nevertheless, depending on the size of the company, the lender could want collateral security or personal guarantees.
2. Tax Liability
If you seek a business loan, you may qualify for tax savings on the interest paid. The interest can be deducted from gross income, lowering your company’s overall tax liability. Some tax exemptions are available for personal loans made to businesses secured by property investment, securities, or other types of property. Personal loans for businesses, however, don’t come with any tax advantages.
3. Better value
Compared to personal loans, business loans often have better rates and conditions. Additionally, they have more adaptable financing choices, such as lines of credit, merchant cash advances, and financing for accounts receivable.
By obtaining a business loan, you could be able to borrow more money and establish a rapport with a lender, two factors that might ultimately help your company grow.
5. Approval
Personal loans can be authorised fast if you have a solid credit score and demonstrate a reliable income source. A solid credit score is the most crucial requirement for a personal loan. You may also need to demonstrate the duration of your company’s existence in the market and a stable yearly income. Business loan approvals may take longer and you will have to furnish all your business documents to get this loan.
Final thoughts
Thus, the choice between a personal loan and a business loan is based on a number of variables. Business loans are a great alternative if you are an established company that requires substantial money to expand its operations. But a personal loan is best suited for a new business that needs a small loan amount for a shorter loan tenure. No matter whether you opt for a personal loan or a business loan, you must make sure to have a strong repayment plan.