Need loan for your new startup? Confused whether to choose personal loan or business loan? The choice can differ based on the status of the business you’re working on. The answer is not a straightforward as different scenario speaks out different stories for the borrowers.
What is a Personal Loan?
A personal loan is the loan which can be taken to meet requirements of any financial needs of an individual like marriage, vacation, medical expenses, bike purchase, etc. If you’re planning to start your own set up, you can opt for the personal loan. The rate of interest in the case of the personal loan is generally on the higher side and thus, one has to be well calculated for their expenses and income before finalizing a deal for personal loans.
Why a Personal Loan?
You can use personal loans for different requirements of life. You can use the loan amount for meeting all needs of yours either in the form of the needs for marriages or any other requirements of your own. In fact, personal loans can be availed for anything, varying from all aspects covering all forms of life needs.
What is a Business Loan?
Businesses require an adequate resources for the purpose of funding to start a new setup or to meet any new expenses for the sole purpose of the business. As intended for the sole purpose of business, this is the loan variety which involves several other different types of loan, such as bank loans, invoice financing, mezzanine financing, asset based financing.
Why Business Loan?
Being your own boss gives a different feeling. It is a feeling of self dependency and utmost self confidence. However, being a business owner carries many burdens in terms of financial ones and one needs to continue growing to meet expectations of markets and fend off all other competitors. With business loans, you can cover several small to big needs of the businesses and can help you in developing your business to a new level.
In case, you are the sole owner of the business, you should go for the personal loans, while in case business carries several partners along with you in a business, one must go for the business loan so as to avoid all troubles in the future. One must also remember the case, when a set up is being started and don’t have enough of plans to furnish to the banks to go for business loans, at that moment personal loans may come handy.
However, one must remember that there are several businesses which a person may get a helping hand through the government and banks can easily offer loans to such businesses. The businesses based on agriculture and renewable source of energy draws a good attention to government and lending agencies. When someone compares personal loans and business loans, one has to take into account the loan amount he/she is supposed to get approved. A personal loan at a certain limit is difficult to obtain, while in case of business loans, you can get it to a very high level. Thus, depending on the requirements of loan amount, a decision can be made to go either for business loan or personal loan.
Interest Rate and Terms
The interest rate of the personal loans generally varies from 12% to 18%, just as the case of the rates of the business loans which languish around 17%. However, the Business loans carry a short term repayment option, in comparison to the personal loans. The Business loans may vary from 12 months to 36 months, while for personal loans, it varies up to 60 months.
While the business loans require the furnishing of the documents of the existing business in support, the personal loan documentation requires the documents in support of income as the main documents. The documentation as required in the case of the business loans is much higher than in the case of the personal loans and thus, business loans can be a little hectic.
Several other aspects of the loans of both types show a difference between them; Considers like follow up is one of the aspects, which plays a highlight in both the business loans and personal loans. The business loans require a constant follow up with annual review as conducted by the banks. There are several banks, which require business to furnish their annual financial reports to the banks for better reviewing of the existing loans. In the case of personal loans, there is no such follow up is needed as long as payment is agreed.
Both the forms of loans carry their own significance and when talked about the better hand when in comparison to the business loans and personal loans, all depends on the perspective of the borrowers and considering some factors for what the loans is desired. Thus, in case a reader is searching for a direct answer to ‘What is a better option for self employed? Personal Loan or Business loan?’, a straight forward solution is a bit difficult to provide here. Analyze your needs and you’re your resources, consider several factors and make a decision over a choice.
While a business loan is just for the purpose of the business, the personal loan is for the variety of needs. The personal loans serve different aspects of the life and cover several aspects like marriage, bike or other such needs. The personal loan is the easier one to take which takes fewer steps to complete in comparison to business loans.
The business loans and personal loans are a good way to the initial establishment either in your business or in your personal life. Make a choice of personal loans if you are a sole owner or proprietor and if you are a business owner with a company setup and need the money to better equip your company, business loan is the best solution.