Business and personal loans work on the same basic principles. However, there are some differences between these two types of credit facilities. Understanding the workings of the two loans will be beneficial in comprehending their differences.
Features of personal loans
Generally, personal loans are borrowed by individuals and not businesses. Lenders perceive individual and business applicants distinctly, which is why personal loans have some exclusive features. Here are four features of such loans.
- Personal finance is often available for smaller amounts
- The process of loan application and approval is quick and simple
- Personal loans are unsecured, which means they require no collateral
- Such loans are beneficial for startup ventures that may not be eligible to avail of business finance
Features of business loans
In the last few years, business finance has seen several modifications and lenders now offer attractive options to businesses. Here are four features of business finance.
- The loan amount is higher than personal loans
- Banks, as well as non-banking financial companies (NBFCs), offer wide range of business loans in India to meet the different needs of applicants
- Lenders offer customized loans to meet the specific needs of businesses across different sectors and industries
- Financial institutions offer excellent support to applicants requiring loans for their business with the objective of helping them grow their ventures
Having seen the features of both types of loans, here are three differences between the two credit facilities:
1. Security
Most loans offered for business purposes are secured against some assets, such as equipment, premises or receivables. On the other hand, personal loans are unsecured, you do not face the risk of losing your assets in case you are unable to repay the loan amount on time.
2. Purpose
Personal loans may be used for any legal purpose. Furthermore, you generally do not need to provide the lenders with the purpose of the funds at the time of application. In comparison, the business loan amount must be used for meeting the operating expenses and other needs of your venture.
3. Loan amount
Business loans are available for higher amounts ranging between INR 3 lakh and INR 75 lakh. However, the personal loan amount is restricted between INR 50,000 and INR 10 lakh.
Self-employed professionals, medical practitioners, sole proprietors, private companies or partnership firms may apply for business loans in India. Additionally, traders, manufacturing companies and retailers may avail of such loans. A large number of financial institutions offer such loans at an attractive rate of interest. One of the leading lenders includes Capital First that provides such loans. The financial institution also offers affordable business loans interest rates, which ensure you do not face financial difficulties while repaying the loan amount.