Loans can be of different types, but the primary ones we would tackle through this article are around business and personal loans. The two loans are different and meant for different purposes, but in many cases personal loans tend to be used for business. For that reason, it is important to understand if one should do this and if yes, under what circumstances it makes sense to use a personal loan for your business.
A personal loan is an amount of money that people borrow for several purposes. Personal loans come with interest that can be used for home renovation, marriage purposes, or any to tackle any other such financial needs. They can also be used for businesses; however, many business owners and entrepreneurs find it skeptical to take a personal loan for their business. Often the question that arises is whether a personal loan can scale up the business. In this blog, we will see a few points when you should apply for a personal loan that will help you scale your business effectively.
What is Business Loan?
Business loans are of different types, ranging from short-term loans, line of credit, equipment financing, merchant cash advance amongst other. Business loans are for a specific purpose and are generally available to further a business, help in running it and to scale up. Amount available, tenure and terms and conditions of the loan are fixed based on the borrower profile and the purpose of a loan. Generally the rate of interest is competitive, but generally needs collateral as a security.
What is Personal Loan?
As the name suggests personal loans are targeted at individuals who may need money for various purposes. This can range anything from buying a gadget to getting married, personal loans offer the flexibility of using the money for any purpose by the borrower. The tenure on such loans is generally low, but the interest rate tends to be high. Generally, personal loans do not need collateral as a security, which is one reason behind its popularity.
When to Apply For a Personal Loan?
There are several factors that you will need to keep in mind while taking a personal loan for your business. If you want to scale up your business using a personal loan, here is when you should apply for it:
1. If the Requirement is small
The best time to take a personal loan to start or scale up a business is when the amount of money is relatively small. The smaller the amount is, the lower the interest will be. Adding to this, the disbursal also will be fast and hassle-free. Also, personal loans don’t require excessive documentation, making it easier for business owners to avail the needed financial assistance. However, make sure to check the eligibility for a personal loan before applying for it.
2. Period of Time and Repayment
If the need for a loan is to only get over a temporary shortfall in money, it may make sense to take a personal loan. Although, you have business loans that take care of such situations, the relative ease of getting a personal loan makes it attractive. Also, if you are sure that you will be able to repay the amount within the stipulated time or even make a pre-payment of the loan, one can opt for a personal loan for the business. Remember, the rate of interest will always be high for a personal loan, so it makes sense to repay it at the earliest.
3. If You Don’t Have a Collateral
Many times, lenders of business loans ask for collateral if the borrowed amount exceeds a certain limit. However, with personal loans, there is no need to worry about this. Personal loans are unsecured loans and the best for businesses. If you don’t have collateral or are not willing to put a price on something that you hold precious, a personal loan has got you covered. From an amount of Rs. 50,000 to an amount of Rs. 5 lakh and more, you can scale up your business with a personal loan without pledging your valuables as collateral.
4. If You Have a Set Time
Another time when a personal loan comes in handy in scaling up your business is when you have a set time. Meaning, if your aim is only to overcome a temporary financial hiccup in your business for a particular period (say 6 months or more), applying for a personal loan is the right thing to do. That being said, if you are sure of repaying the borrowed amount within the tenure that you have selected, go for a personal loan without any second doubt.
5. If you are in a Hurry
If you are in a rush to expand or scale up your business, then yes – a personal loan is the best option that is available for you. A personal loan for a businessman is easy to avail, sanctioned in a couple of days, and most importantly, it requires minimal documentation, making the entire process smoother and quicker. Adding to this, personal loans are quite flexible when compared to the other ones.
6. Exhausted with other options
Finally, if all other avenues of loan have been exhausted, taking a personal loan may be the only choice left. However, a personal loan is also dependant on the credit profile of the individual borrower. If you already have other loans active, depending on your income, you may or may not be able to get a personal loan.
Other than these, you can get a personal loan for business when you have exhausted all the other options. But what you need to keep in mind is that the personal loan amount will depend on your credit profile. If you already have an existing loan and you maintain a good repayment profile without any defaults, chances are you will easily get a personal loan. With these in mind, it can be positively established that you can boost your business with a personal loan by meeting the eligibility required; however, always consider the aforementioned factors.