You can be a business man planning to expand his business or you can be someone who needs funds to buy machinery or gadgets for the business, whosoever you are, it is important to understand the best way to finance your small business requirements. Business loan is an instant option that will come to your mind for financing your business, but many entrepreneurs feel that a personal loan can also be an ideal choice for it.
Personal Loan V/S Business Loan
What is a Small Business Loan?
A small business loan offers funds to small businesses so that they can manage all the expenses even if the organization is not earning desirable profit. Small business loan is offered by many banks and NBFCs and the loan amount goes upto Rs. 2 crore. A small business loan is an ideal option for those who prefer not to mix their personal and professional expenses.
Small Business Loan- Features and Benefits
- Quick application process: A business loan can be applied quickly at Paisabazaar from the comfort of your home or office and requires no visit to the lender’s branch
- Collateral free loan: Unlike a house loan or a car loan, a business loan is a collateral free loan. However, there are a few loans in which plant, machinery or raw material need to be provided as collateral
- Large loan amounts: You can opt for a larger loan amount that goes up to Rs. 2 crore. This amount can be availed as per your business requirement and helps you to deal with the financial emergency without any hassle
- Flexible tenure: The tenure for a business loan goes up to 10 years and offers complete flexibility when it comes to repayments
Small Business Loan- Interest Rate
The interest rate of a small business loan starts from 16% p.a onwards and various from individual to individual depending upon his eligibility.
Small Business Loan- Eligibility Criteria
- You should either be a Retailer, Trader, Manufacturer, SMEs, MSMEs and Large Enterprises, Partnership Firms involved only in Trading, Manufacturing or Service sectors, Self- employed individuals/professionals- Doctors, Or CAs, etc.
Private limited companies and closely held limited companies
- You should be at least 18 years old
- Your maximum age should be 65 years
Please note that operation history, business turnover, business existence, profitability criteria and credit score are defined differently by various lenders.
Small Business Loan- Documents Required
- Recent passport- sized photograph
- ID Proof: Passport, Aadhaar Card, PAN Card, Driving License, Voter ID Card
- Address proof: Aadhaar Card, Voter ID Card, Driving License, Utility Bill, Passport, Water Bill, Electricity Bill
- Business address proof
- Proof of business existence for last 3 years
- Bank statement of last 6 months
- Income Tax Return (ITR) of last 3 years
- Balance sheet and Profit and Loss account statement
- Financial documents audited/attested/signed by Certified CA
- Sales Tax Certificate
- Copy of trade license
- Certified copy of partnership deed
- GST registration certificate
- Proof of ownership of the possessions used
What is a Personal Loan?
A personal loan is an unsecured loan that has a flexible end use and can be availed by an individual to meet personal as well as business needs. A personal loan can help a businessman with funds up to Rs. 40 lakh to deal with various business finances.
Personal Loan- Features and Benefits
- Flexible end use: You might opt for a personal loan to deal with your business expenses but you will not be restricted to use it for a particular purpose unlike a home loan or a car loan. You can use a personal loan to deal with other personal expenses too like home renovation, medical emergency, purchase of a household item, etc.
- Minimum documentation: The complete process to apply for a personal loan takes place online and requires uploading minimum documentation to process the application
- Flexible tenure: Ranging from 1 to 5 years, the flexible tenure option offered by personal loan allows you to repay as per your repayment ability
- Quick disbursal: Once the loan is approved, the amount gets disbursed to your account within 3 to 5 working days
Personal Loan- Interest Rate
The interest rate of a personal loan starts from 10.25% and varies from bank to bank. The interest rate of an individual is finalized after considering various factors like his age, credit score, employer, repayment ability, etc.
Personal Loan- Eligibility Criteria
- You should be a self- employed individual
- Your minimum age should be at least 21 years
- Your minimum annual income should meet the income criteria set by the bank
- You current business should be in existence for at least 3 years
Personal Loan- Documents Required
- ID Proof: PAN Card, Aadhaar Card, Driving License, Voter ID Card, Passport, etc.
- Address Proof: Utility Bills (Electricity Bill, Phone Bill, etc.), Ration Card, PAN Card, Aadhaar Card, Voter ID Card, etc.
- Business Proof: Certificate of Incorporation, Proof of Business Existence, Certificate of Registration with Appropriate Registration Body
- Income Proof: ITR of Past 2 years, Certified Profit and Loss Statement
Both a personal loan and a business loan have their own set of advantages. The prime motive is to deal with all the business expenses without facing any losses. If you opt for a business loan, you will get more funds in hand as compared to a personal loan. Therefore, if you have a huge setup and require more funds, opt for a business loan and if you require lesser funding, personal loan can be the right choice.
Hence, you should analyse both types of loans as per your business requirement and choose wisely according to the loan amount you need, interest rate that you can afford and tenure that you can manage.