One of the critical aspects of any business is finding the necessary finances. Of course, you have your capital contribution, but that will not be enough for running your business or expanding it. You need to install new machinery or equipment. The best way to get such loans is to go for Business Loans. Or should you go for Personal Loans instead? Both the options are viable. Depending on your requirement, you can go for either of these loans. Let us look at both the possibilities and see three situations where applying for a Personal Loan can be a better choice than a Business Loan.
Both these loans work differently, but they serve the purpose right. It is better to understand how each of these loan products works to enable you to select the right one for your business.
The Personal Loans are one of the easiest loans to get. There is not much paperwork involved in the approval of Personal Loans. Banks and NBFCs (Non-Banking Financial Companies) have different Personal Loan products. The eligibility criteria for a Personal Loan are straightforward. All you have to do is to provide proof of your income and its continuity. The banks refer to the credit bureaus to procure and study your credit report. You need an excellent credit score in the range of 700 and above to get a Personal Loan. If you satisfy all the criteria, you get your loan within 72 hours. There is minimal documentation. You have a maximum of 60 months to repay the Personal Loan.
Business Loans are different. Banks usually finance established or running businesses. Start-up companies can face challenges in acquiring Business Loans. You need to provide extensive documentation that includes:
The advantage is that you can go for large financial needs whereas Personal Loans are better to meet small but immediate requirements. The Business Loans have a more extended repayment period as compared to Personal Loans.
Start-up industries can take advantage of the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) loans (for loans up to 1Crore without collateral).
Let us look at 3 situations where a Personal Loan is better than a Business Loan:
As a start-up industry, you will not be able to furnish the audited financial statements of the business. The banks have to rely on your business plan and the projected financial statements. Other than your personal credit record, the banks do not have any means to verify the credentials of the business. Under such circumstances, banks ask for collateral.
You have the CGTMSE loans where the banks can lend up to 1 Crore without collateral. But, you have to pay the guarantee fees and renew the guarantee every year. It could add up to a substantial amount. A Personal Loan for a smaller amount is a better option for you to build up the necessary credit. The banks are quick to sanction Personal Loans as compared to Business Loans.
Business Loans are lengthyprocesses that take time for approval. There are multiple layers of appraisal in banks. It can easily take more than 15 to 20 days for you to get the approval. You have to submit numerous documents. It can take time to prepare these documents.In case you need money right away, the Personal Loan is a better option. Banks sanction Personal Loans within 72 hours. Hence, if your requirements are small and immediate, the Personal Loans are always a better bet than the Business Loans.
Business Loans are big loans that require collateral. Yes, you have the CGTMSE loans where banks do not accept collateral for loans up to 1Crore. However, for all other Business Loans, collateralisnecessary. If you do not have collateral or do not wish to provide collateral, the Personal Loans are the best options available to you.
If your requirements come under the three categories mentioned above, you should not hesitate to submit an Online Personal Loan Application using MyMoneyMantra.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.