To address financial needs, you typically have two alternatives: save regularly to accumulate enough money or borrow it now and repay it over time.
Borrowing can be made for a range of purposes, whether to meet a personal emergency (personal loan) or to invest in your business (business loan), among other reasons.
A business loan is an advance offered by banks or other financial institutions to entrepreneurs and business owners to fund their business activities.
These loans can be used for various purposes, such as purchasing equipment, managing working capital, expansion, inventory, or meeting other operational costs.
Loan amounts, rate of interest and eligibility criteria vary from lender to lender.
What is a business loan?
A business loan is specifically designed to meet business needs and is often offered with better terms to start-up founders. When the business is well-established, these loans carry lower interest rates. Business loans, which are generally higher in value than personal loans, are supposed to be repaid from business revenue.
How is it different from a personal loan?
Although there are some similarities, a business loan is quite different from a personal loan. A personal loan is an unsecured loan taken by individuals for personal use, such as medical expenses, education, or home improvements.
Higher rate of interest
While you could use a personal loan for business needs if you are unable to access a business loan, personal loans tend to usually have higher interest rates. Additionally, the amount you can borrow with a personal loan is usually smaller compared to a business loan.
So, while a personal loan can be used for business purposes, a business loan is typically a better option. Business loans offer terms that are more suited to the nature of business financing.
Should you use personal loan for business?
These are some advantages of taking a personal loan to invest in business:
I. Instant access: Unlike business loans, lenders disburse personal loans immediately. So, if you need money urgently, this could be a go-to option.
II. Unsecured loan: Being an unsecured loan, a borrower doesn’t have to give his assets, such as property, in the form of collateral.
III. Simple process: For individuals with a good credit score, personal loans are often easier to apply for than business loans, which may have a higher threshold to meet.
(Raising a loan comes with its own set of risks. Due caution is advised.)
