Personal Loan Vs Business Loan. Which is better

Personal Loan Vs Business Loan. Which is better

08 Jul 2019

When looking to raise capital for one’s business venture, having funds in place is important. Most entrepreneurs resort to availing a business loan to meet this financial requirement. However, not many people are aware that you can use a personal loan as an alternative option. While business loans are specifically granted with keeping your entrepreneurship interests in mind, a personal loan can be availed for any reason.

So, which is better? And what exactly is the difference between personal loan and business loan?

Let us understand this in detail.

Personal Loan

A personal loan is an all-purpose, unsecured type of loan. You can avail a personal loan for a number of reasons without having to provide any kind of collateral as security against it.

A personal loan is a great way to get quick financial assistance in times of financial crunch. You might have enough funds as savings, however, in some situations, you might find yourself in need of some extra funds. By availing a personal loan, in addition to giving you instant cash, you get access to numerous benefits that come with it. For a personal loan you would not have to provide any of your personal assets as collateral. It is always better to get a personal loan instead of borrowing from family and friends. Unlike other secured loans like home loans, car loans, or education loans, personal loans can be used for a variety of purposes.

Advantages of a Personal Loan

  • Easy application process
  • You do not have to provide any collateral against them
  • Minimal documentation is required to avail a personal loan
  • Can be used as a consolidated repayment option for all your existing loans
  • It is an excellent source of emergency funds

Disadvantages of a Personal Loan 

  • Since no collateral is taken against it, the interest rates are relatively high
  • The amount granted as a personal loan is comparatively less as compared to what can be availed by other types of loans
  • You need to have a very good credit score to qualify for a personal loan

Business Loan

A business loan is granted for business purposes only. You can use a business loan to fund your start-up, expand the existing business infrastructure, fund your pay roll, or for any other business capital requirement.

Business Loans intend to fulfill the funding requirements of a business. This loan can be used for meeting working capital requirements, inventory and equipment purchase, and for other business-specific growth purposes. But with the simplification in the loan process, the major concern for the business owners is the repayment of the loan and its interest rates. Along with it, there are other worries looming due to the increase in tax with the surge in the capital.

Advantages of a Business Loan

  • Business loans offer tax benefits
  • They are granted at comparatively lower interest rates
  • They are available in different variants such as term business loan, standard business loan, etc.

Disadvantages of a Business Loan

  • Not all businesses qualify for a business loan. You have to ensure that you submit a robust business plan to convince the loan providers to grant you the loan.
  • The review process for a business loan application is considerably long. The loan providers go through your business credentials, including past financial statements, profit records, and general logistical expenses before sanctioning a business loan.
  • Most business loans require you to provide a collateral as a form of financial security against the loan.
  • You might not be granted the entire requested amount. Sometimes, banks or other financial institutes only grant 70%-80% of your requested business loan amount.

Since both personal and business loans have their share of advantages as well as disadvantages, how do we decide which is the better option?

To gain some perspective on this matter, the below table offers a comparison for business loan vs personal loan-


Personal Loan

Business Loan

Ease Of Application

Easy application with instant approval

Lengthy application and review process.


No collateral required

You need to provide a collateral

Interest rates

High interest rates

Low interest rates


Short term loans

Short as well as long term loans

Major Eligibility Criteria

Good credit score, debt-to-income ratio

More focus on business credit than personal credit. You might be asked to provide business plans, account & profit statements, logistic reports, etc.

Restriction of Use

No restriction. Can be used for a number of personal reasons

Only to be used for business purposes

Tax Benefit

No tax exemption or tax deduction allowed on a personal loan in India

Tax exemption and tax deduction available on a business loan in India

In conclusion

Judging from the above comparison, choosing between a personal loan and a business loan is indeed a difficult decision. If you are comfortable with high interest rates and short loan tenure, a personal loan is the best option for you. However, if you want to avail a significantly larger amount and enjoy benefits such as tax exemptions and deductions on your loan, then opting for a business loan makes more sense.

For the sake of brevity-

Consider a business loan if:

You have an established business history and planning to get a loan for further upgradation, better infrastructure, etc.

You have a solid collateral to grant as a security against your loan

You need funding for specific business needs

You need to take out an advance on any invoice

For business loans up to INR. 15 lakhs, apply for the Bajaj Finserv Business loan today!

Consider a personal loan if:

Your business isn’t new or you are planning to start a new venture

You do not have any material asset to keep as collateral but are comfortable to risk your personal finances for business

You have an excellent credit history

You want to cover business as well as personal expenses

For customized offers that meet your personal loan requirements, apply for the Personal Loan today!

Ultimately, the decision to apply for a personal loan or a business loan lies with the borrower. If you are unsure which option would be best suitable for your financial needs, get in touch with a financial advisor who can help make the decision easy for you. To know more about the various features of business loan as well as a personal loan, visit us at Finserv Markets today! Whether you are a salaried individual looking to start your own business or an experienced businessperson hoping to get additional funding to expand your business avenues, we at Finserv Markers will assist you in all your financial endeavors. To know more, visit now!

Finserv Markets, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!