India is seeing a surge in entrepreneurship. Make in India campaigns and startup incentives are helping to create a very favourable business climate. Without funding, no matter how good an idea is, it will fail to take flight. A business owner has access to a variety of financing options. However, other funding options, such as venture capital, mergers, or stock infusion, require dilution of your ownership interest, which not many business owners are happy with. The business owners can apply for loans in these situations.
Banks, non-banking financial firms, and the government all offer loans, which can be utilised for either short- or long-term purposes.
Business loans are of different types, ranging from short-term loans, line of credit, equipment financing, merchant cash advance amongst other. Business loans are for a specific purpose and are generally available to further a business, help in running it and to scale up. Amount available, tenure and terms and conditions of the loan are fixed based on the borrower profile and the purpose of a loan. Generally the rate of interest is competitive, but generally need collateral as a security.
As the name suggests personal loans are targeted at individuals who may need money for various purposes. This can range anything from buying a gadget to getting married, personal loans offer the flexibility of using the money for any purpose by the borrower. The tenure on such loans is generally low, but the interest rate tends to be high. Generally, personal loans do not need collateral as a security, which is one reason behind its popularity.
Benefits of taking a Personal over a Business Loan
- Quick Approval
- No Need for a Collateral
- Builds Credit Score
- Minimal Documentation and Easy to Avail
When is it a good idea to use a Personal Loan for Small Business?
- You’ve exhausted other financing avenues, like business loans, business credit cards and crowd funding. Using a personal loan for startup costs is a potential avenue for funding when traditional business loan requirements are holding you back.
- You have good personal credit and can secure a low APR. You should only take out a personal loan if you can get favorable terms.
- You are confident in your ability to repay the loan. Personal loans are issued to individuals, not businesses. If your business goes under, you’re personally responsible for repaying the loan.
Advantages of taking a Personal Loan for Business use
- If you have a new business, it is always easy to get approval for a personal loan because the lender will only look at only your personal credit history and income. You do not have to provide other business documents.
- Lenders sometime disburse personal loans just within a few days, which is good if you require quick loans.
- Most of the personal loans are unsecured and do not require any collateral.
8 Reasons Why Businessmen need a Personal Loan
- To Invest in Building Infrastructure
- To Manage Operational Costs
- To Upgrade the Plant and Machinery
- To Manage the Inventory
- To Increase Cash Flow and Working Capital
- To Hire New Employees
- To Purchase Raw Material
- To Expand Your Business to Another City
Multi Purpose Personal Loan for Entrepreneurs
Ideally, a business loan should be used to finance the needs of your firm, but a personal loan can also be looked at in the following cases.
1. The need is Minimal
A personal loan might be considered if the quantity of money required is quite small. The application and disbursement procedure is often straightforward, and it does not need the same level of documentation as a company loan. If you only want a few lakhs of rupees, a personal loan may be appropriate.
Personal loans are unsecured, which means that one of the main benefits is that you don’t usually need collateral to get one. Business loans, on the other hand, are virtually typically secured, which means you must supply collateral. If you don’t have any collateral or don’t want to give any, a personal loan is a good choice to raise money.
3. Urgent Need
It takes time for a business loan to be authorised and the funds to be sent to your account. From a firm’s books of accounts to a business strategy, business loans often require a vast number of papers to be presented. Getting all of the necessary documentation in order and then getting the loan approved takes time. A personal loan can be approved in a few of days if you need money right away and can’t afford to wait. The decision between a company loan and a personal loan is based on the urgency of the funding requirement.
4. Duration and Repayment
If you simply need a loan to cover a short-term financial emergency, a personal loan can be the best option. Although company loans are available to help with such situations, the relative simplicity with which a personal loan may be obtained makes it appealing. You may also take out a personal loan for your business if you are confident that you will be able to repay the loan within the agreed-upon time frame or even make a pre-payment. Remember that the interest rate on a personal loan will always be high, so it’s best to pay it off as quickly as possible.
5. Other possibilities have been exhausted
Finally, if all other lending options have been tried, a personal loan may be your last option. A personal loan, on the other hand, is dependent on the credit profile of the particular borrower. If you already have loans open, you may or may not be able to receive a personal loan, depending on your income.