Loans can come in handy when you are in need of some emergency cash. You can use a personal loan for many things, such as taking care of immediate or unforeseen expenses or going on a holiday. But, you can use a business loan for business activities only. However, when it comes to funding business activities, you can either get a business loan or a personal loan. But, you must note that they are different in many ways. You will learn about some key differences between the two in this article to decide which loan will be suitable for you.
Some of the main differences between personal loan and business loan are as follows:
Particulars |
Personal Loan |
Business Loan |
Use |
A personal loan can be used for various things. |
Business loans can only be used to fund business-related activities. |
Interest Rates |
High since personal loans are unsecured loans. |
Lower than personal loans as generally a collateral needs to be submitted to get a business loan. |
Documentation |
A minimal amount of documentation is required for a personal loan. |
A long list of documents are required to secure a business loan. |
Tax Deduction |
Personal loans do not attract any kind of tax benefits in India. |
Indian borrowers can avail tax deductions on business loans up to an extent. |
Collateral Requirement |
No collateral required. |
The borrower may have to offer up an asset of value as collateral to get a business loan. |
Eligibility Criteria |
Credit repayment history, age of the applicant, credit score and monthly income. |
Things such as business vintage, future plans for the venture and projected future profits are taken into consideration. |
Repayment tenure |
Personal loans are supposed to be repaid over a short period of time. |
Business loans can be repaid over relatively longer repayment tenures. |
Disbursal Time |
Once the loan is approved, the sanctioned loan amount is usually credited into the account of the borrower within three days. |
Since a considerable amount of due-diligence needs to be done before approving a business loan application, the approved amount takes a longer period of time to reach the account of the borrower. |
The main pros and cons of a personal loan are as follows:
Advantages of a Personal Loan |
Disadvantages of a Personal Loan |
No collateral is required to get a personal loan. |
Personal loans attract high interest rates as they are unsecured loans. |
Personal loan amounts are disbursed quickly.
|
Personal loans need to be repaid over a shorter period of time. |
There are no restrictions on the ways in which the personal loan money can be used. |
One can secure a very small amount as a personal loan in comparison to a business loan. |
Personal loans require minimal documentation. |
One cannot claim tax benefits of any kind on the Equated Monthly Instalments (EMI) payments of a personal loan in India. |
Some of the key positives and negatives of a business loan are:
Advantages of a Business Loan |
Disadvantages of a Business Loan |
One can secure a large amount through a business loan. |
It takes longer to process and disburse a business loan. |
As business loans are usually supposed to be backed by collateral, interest rates are generally low. |
One can only use a business loan for business-related activities. |
One can claim tax benefits for paying business loan EMIs. |
The list of eligibility criteria for a business loan is typically very long. |
Business loans can be repaid over a longer repayment tenure. |
An exhaustive amount of documents are supposed to be submitted while applying for a business loan. |
