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Business vs. Personal Loan: What’s the Best Fit for Your Business Goals


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Posted on
Dec 20, 2024
Business Loan Vs Personal Loan

As a business owner, you know that your business always needs access to cash, whether for business expansion or to cover day-to-day expenses. If your business is one of the 4 crore MSMEs registered on the Udyam platform, you will also need it to stay ahead of your competition.

Besides easy access to cash, the loan also offers benefits like tax savings and helps build credit. This is where choosing between a business loan and a personal loan proves to be most important for you and your business. Both loan types come with their own features, interest rates, and benefits.

Difference Between Personal Loan and Business Loan

As the name suggests, personal loan is usually acquired or granted for personal reasons like medical expenses, tuition fees, travelling and also business.

A business loan, on the other hand, is acquired or granted for the sole reason of covering various business expenses. It includes meeting essential business needs, buying equipment, and managing inventory, among others.

ParametersBusiness LoanPersonal Loan
PurposeDifferent business goalsPersonal requirements
ReasonsBusiness expansion, capital expenditure, growth, asset acquirement, and moreRemodeling a home, taking a vacation, buying a car, or paying for a wedding
CollateralMay or may not require collateralRequired (Unsecured loans)
AmountHigher loan amount up to ₹1 croreSmaller loan amount up to ₹40 lakh
Tax BenefitsTax deductibleNo tax benefits

Features of Business Loan vs Personal Loan India

Here are the different personal loan vs business loan rates and features you must know before applying:

Business LoanPersonal Loan
Interest RatesStarting from 1% per month *Starting from 11.99% per annum
Loan AmountUp to Rs. 1 CrUp to Rs. 40 lakh
TenureUp to 36 MonthsUp to 60 Months
CollateralYes/No (Secured Or Unsecured loan)No (Usually Unsecured loan)
PurposeExpansion, funding business operations and capital investmentMedical, relocation, vacation, wedding, Travel, home improvement and more
EligibilityBusiness credit score, business viability and financial statements, Industry Experience, Company Sales, Business OperatingIndividual credit score and income

What Makes Business Loan Right for Your Business?

No matter the industry your business operates in, you will always need funds to expand or meet existing commitments. What most businessmen don’t realise is that taking a loan is itself a commitment and comes with monetary repayment.

Benefits of Taking a Business Loan

You can obtain a Business Loan from different banks or NBFCs for reasons ranging from business expansion to taking advantage of new business opportunities. When you apply for a business loan, you get access to the following business loan benefits:

  • Flexible Loan Amount: Business loans offer greater flexibility in loan amounts. This allows you to support greater business requirements such as growth plans, inventory acquisitions, and operating demands.
  • Business-specific Customisation: Business loans are solely obtained to meet the business demands. These demands include managing cash flow, business expansion, seasonal business requirements, and working capital requirements.
  • Improves Business Credit: Prompt loan repayment improves your business credit and facilitates future borrowing. It helps you get better loan terms for your business, including reduced interest rates and longer payback periods.
  • Tax Benefits: Your business has numerous tax obligations that take a big chunk of revenue. When you avail a business loan, it helps you reduce your taxable income and lowers your overall tax liability.

Why are Business Loans Better for Business Growth?

The growth of every business depends greatly on the investments you make in your business. Whether you are stocking up on seasonal products or improving infrastructure, every investment leads you closer to your goals. At times, this may require you to get a higher loan amount, which a personal loan does not offer.

It is just not the higher loan amount where the business loan proves to be better than personal loans. Here are the key reasons why business loans are better for business growth:

  • Larger Funding: As previously stated, you need larger funding to meet varying business demands and long-term investments. This will promote you to keep your business one step ahead of your rivals.
  • Structured Repayment Plans: Business loans with structured payback plans help you manage your debt and preserve financial stability. This not only helps you maintain cash flow but also avoids defaults.
  • Build Strong Business Credit Profile: Taking a business loan builds a strong business credit profile, which is essential to business expansion and financial stability. The profile makes it simple for you to get favorable financing arrangements.

Tips to Decide the Right Loan for Your Business

Follow these few important tips in order to select the right business loan:

  • Assess Your Funding Needs: First, you must determine how much money you need for your business. Calculate the exact amount of funding you need by considering financial requirements.
  • Evaluate Your Eligibility: Check your personal and business credit scores to learn more about your financial situation and eligibility. After evaluating your eligibility, gather the necessary paperwork to back up your loan application.
  • Compare Interest Rates, Repayment Terms, and Flexibility: To get the finest loan terms, compare the interest rates offered by different lenders. Then, review the repayment terms to ensure they fit your company’s financial flow.
  • Consider Future Business Growth and Credit Requirements: Know if the loan meets your business’s current and future finance requirements. Think about how the loan will impact your credit score and ability to borrow in the future.

Business Loan vs Personal Loan: Right Choice for You

There is a clear choice when it comes to choosing between the business loan vs personal loan. This choice, however, relies greatly upon your business needs, objectives and goals.

1. Personal Loan

A personal loan is the right choice for you if you need money quickly to meet urgent business demands. However, there is a lesser flexibility in terms of amount and tenure.

2. Business Loan

Assume that you need a lump sum for your business that is customised to your business. If that is so, a business loan is the right choice for you. You have access to not only flexible loan amounts but also tax benefits. An additional benefit to all this is that it helps you improve your business credit.

The right choice lies in your financial needs and the associated circumstances. In either situation, you must first understand your financial needs and the terms of the loan.

How Flexiloans Can Help You

Flexiloans is a leading online lending platform committed to providing funds for all your business needs. Our goal is to address the challenge that your business encounters when trying to obtain sufficient, flexible, and fast funding for business expansion.

We also make it easier for you to solve the problem that your company faces when attempting to secure adequate, adaptable, and quick funding for business growth. You can get a business loan for growing your company, meeting seasonal needs, managing short-term cash flow, and meeting routine requirements for working capital.

Types of Loans FlexiLoans Provide

  • Term Loan: Term loans provide the funds required for the establishment, running, growth, and enhancement of commercial enterprises. A term loan can support your business goals, whether you’re just starting out or growing.
  • Loan against POS (Point of Sale): A loan secured by POS provides a special remedy for Indian small business owners who struggle to obtain funding. Leveraging your regular card transactions will provide you access to the money you need to maintain and expand your business.
  • Line of Credit Loan: A line of credit loan offers the freedom to access emergency monetary help when unforeseen possibilities or obstacles present themselves. For “just-in-case” situations, it serves as your financial safety net.
  • Vendor Financing: Vendors are vital to the complex web of supply chains because they provide the raw materials needed to manufacture products. In the manufacturing cycle, vendor finance makes sure that this crucial link stays intact, which benefits manufacturers and suppliers alike.

Benefits of Choosing FlexiLoans

  • Flexible terms: FlexiLoans provides adjustable terms that can be customized to meet your unique business requirements.
  • Quick Processing: Decisions on loan approval are frequently made in less than a day. With just a few documents, you can apply online and complete the application procedure with little paperwork.
  • Low Interest Rates: We offer competitive interest rates to keep your borrowing expenses as low as possible.

Conclusion

When running a business, you will always be short on funds to pursue a new opportunity, expansion, or meet existing commitments. This hindrance can be easily managed by considering one of business loan vs personal loans. Choosing the right one will not only help you fulfil your objective but also find new avenues for growth and expansion.

If there is indeed a hindrance resisting you in your business, let FlexiLoans help you take it away. Expand your vision and grow your business by applying for a business loan. Get the approval within 48 hours so that you meet all your business needs.

Frequently Asked Questions

Which loan is better for businesses in India?

The purpose and size of the financing required determines the decision between a personal loan vs business loan. Business loans are developed primarily for business needs and often provide larger loan amounts. Personal loans, on the other hand, are more flexible and can be utilized for any business need.

Which documents are required for the business loan?

The key documents required to apply for a business loan are as follows:
Identity Proof (PAN Card, Aadhaar Card, Passport, Voter ID, or Driver’s Licence)
Utility bills
Financial documents (ITR, bank statements, a balance sheet, and profit and loss statements).
Proof of business ownership

How much personal or business loan can I get?

The amount you may acquire for a personal is up to 40 lakhs and for business loan is up to 1 crore without collateral.

Can business loan payments be deducted from tax?

Yes, interest on a business loan is normally deductible as a business cost, which can help you lower your taxable income.

Who to get a business loan from?

You can get a business loan from different banks and NBFCs. One prominent name is FlexiLoans, a RBI registered NBFC. It provides a loan with minimum documents and without collateral.