Personal loans and business loans are two different products which are meant for different purposes. However, many times people avail personal loans to meet their immediate business needs. In that context, it is important to understand if that’s a right thing to do or not. And if yes, what all circumstances make it right to opt for a personal loan instead of a business loan. However, let’s first learn a bit about these two lending products.
A business loan can be of multiple types, ranging from merchant cash advance, equipment finance, line of credit, short term loan to more. This loan is meant for a certain purpose, which in most cases is to improve business operations, meet certain business expenses or to scale up. The terms and conditions associated with the business loan, amount offered and the tenure is fixed depending upon the exact purpose of loan and borrower’s profile. Although the interest rate is competitive, the lender asks for some collateral as security.
As is evident from its name, this type of loan is meant for individuals who wish to meet certain immediate personal finance needs. It could be for anything like funding a vacation, laptop purchase, renovating home, medical expenses etc. The lender is not bothered about the purpose you use the loan amount for. The tenure is comparatively shorter and the interest rates are also marginally lower than business loans. In general, there is no collateral required as security for personal loans, which is a major reason behind their popularity.
When should you take a personal loan for business?
Your decision of taking a personal loan for your business needs will depend on many things, and hence must be taken carefully. While most enterprises take business loans to meet their finance requirements, you can also opt for a personal loan in the following circumstances: