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Business and personal loans differ mainly on grounds of the purpose they're lent out for. Compare the two here and see what suits you best.

Business Loans vs Personal Loans: How Do They Compare

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"Business Loans vs Personal Loans: How Do They Compare"

Pranav Karnad

Get your loan basics covered: Think interest rates, clearing debt, etc.

<h2>What is a business loan?</h2><p>A business loan is a kind of loan that you can take to fund any business-related requirements. Both banks and Non-Banking Financial Companies (NBFCs) offer this kind of loan. Interestingly, unlike most other kinds of regulated borrowings, business loans can be of various types. Each type of business loan helps meet certain specific requirements related to your business.</p><h2>What are the different types of business loans?</h2><h3>1. Term loans</h3><p>A term loan is a long-term business loan that you can get from a bank or NBFC. You'll have to repay the loan over a fixed tenure, which depends on whether it's secured or unsecured. Secured term loans can be repaid over 15-20 years, while unsecured loans must be repaid in 1-5 years.</p><h3>2. Startup loans</h3><p>Startups need funds to establish and grow their businesses. They may use investor money or a startup loan to cover emergency cash flow needs. Lenders consider personal credit and financials to determine eligibility and borrowing limits.</p><h3>3. Working capital loans</h3><p>A working capital loan funds your business's day-to-day operations, like paying employee wages, buying raw materials, and paying creditors. These short-term loans help your business handle seasonal demand and temporary cash flow shortages.</p><h3>4. Invoice financing</h3><p>This business credit facility, also called invoice factoring or discounting, enables you to handle financial repercussions from late payment of large invoices by your clients. The lender provides upfront financing of around 80% to 90% of the invoice amount, giving you quick access to cash for your business needs. The lender then takes ownership of the invoice and recovers it from your clients.</p><h3>5. Equipment financing</h3><p>This is a business loan for buying new equipment or machinery. The equipment is usually the collateral, but you may need to offer more assets as collateral if the machinery's value is not enough.</p><h3>6. Loan against property</h3><p>Businesses can get loans using their property as collateral. This kind of loan is usually favored by small and medium-sized businesses. The lender typically finances 70% to 80% of the property value and repayment can take up to 15 to 20 years.</p><h2>What are the advantages of a business loan?</h2><h3>1. Lower interest rates</h3><p>Many kinds of business loans are secured loans. Since you anyway need to offer up an asset as collateral to reduce the lender’s risk, you get the benefit of lower interest rates on business loans. However, keep in mind that the interest rates on an unsecured business loan will be higher.</p><h3>2. Tax benefits</h3><p>When you borrow funds in the form of a business loan, you will have to pay back the principal and interest levied over the repayment tenure. Although the principal amount is not tax-deductible, the interest you pay on your business loan can be deducted as an expense from your total income, thus reducing your overall tax liability.</p><h3>3. Different kinds of financing</h3><p>There are different kinds of business loans that you can choose from. This gives you more freedom of choice, as well as an opportunity to select a credit facility that is aligned with your financial requirements. For instance, if you wish to purchase new machinery, equipment financing may be more suitable. In case you want to cash in on your invoices now rather than later, invoice financing can help.</p><h2>What is a personal loan?</h2><p>A personal loan is a kind of loan that you can avail to meet your own personal financial requirements. Since your personal financial needs can vary greatly, a personal loan can be used in many different ways. For instance, you could use a personal loan to finance your next international vacation (although we wouldn’t recomment that). Or, you could use it to pay off any existing high-interest debt in your portfolio - this is called debt consolidation. You could even use the funds to renovate your home or buy assets for your business.</p><p>You will generally not need to pledge any asset as a security if you are availing of a personal loan. This is because the loan is unsecured, unlike home loans or car loans. The repayment tenure for a personal loan varies from one bank to another. In most cases, the tenure ranges from 12 months to 60 months.</p><h2>What are the advantages of a personal loan?</h2><h3>1. No collateral requirements</h3><p>You do not need to pledge any asset as a security when you avail of a personal loan. So, it doesn’t matter if you have no jewellery or house property in your name. A personal loan can help you meet emergency financial needs without the burden of having to offer up collateral.</p><h3>2. Quick loan disbursal</h3><p>The amount borrowed via a personal loan is typically disbursed fairly quickly. Once your loan application is reviewed and approved, you can expect to find the money credited to your account within 24 hours or so. Some lenders even offer instant loan disbursals. Through Fi Money, you can <a target="_blank" rel="noopener noreferrer" href="https://fi.money/features/instant-loans">get instant loans </a>- with the loan amount credited to your account within minutes.</p><h3>3. No or low restriction on fund usage</h3><p>Unlike a business loan, which is to be specifically used for the purpose of meeting the financial needs of a business, a personal loan can be used for various expenses. This degree of flexibility can be quite beneficial for borrowers, because you can use funds from the same loan to meet various personal expenses in one go.</p><h2>Business loans vs personal loans: How do they compare?</h2><p>This table should help put the differences in perspective:</p>

<h2>Conclusion</h2><p>Although business and personal loans are both forms of credit, they differ from each other in the purpose they are lent out for, among other things. The next time you are in need of some additional funds, give this blog a quick read so you know exactly which type of loan to apply for.</p><h3>Frequently Asked Questions (FAQs)</h3><h3>1. Is a personal loan ever a good idea?</h3><p>Yes, a personal loan may be a good idea in many situations. For instance, if you want to pay for a large purchase, carry out a debt consolidation, meet emergency expenses or pay for your child’s higher education, a personal loan may be a great way to tackle these financial requirements without having to tap into your savings or investments. On the other hand, if you are already burdened by debt, taking on a new personal loan for discretionary spends may not be a good idea.</p><h3>2. Can I use a personal loan as a business loan?</h3><p>You can use the funds borrowed via personal loan for funding some of your business requirements. However, the converse is not true. The funds you borrow through a business loan cannot be used to meet your personal financial requirements.</p><h3>3. Which is better: a personal loan or a business loan?</h3><p>The answer to this is quite subjective. A personal loan may be a better choice if you have no collateral to offer, and if you are looking to borrow money to meet your personal financial needs. On the other hand, if you are in need of money to fund business expenses such as working capital requirements, the purchase of new equipment or the payment of salaries to your employees, a business loan is the right choice.</p><h2>Some other long reads you might want to check out</h2><p><a target="_blank" rel="noopener noreferrer" href="https://fi.money/calculators/personal-loan-emi-calculator">Personal Loan EMI Calculator - FI.Money&nbsp;</a></p><p><a target="_blank" rel="noopener noreferrer" href="https://fi.money/blog/posts/what-are-the-top-10-startup-india-schemes">What are the Top 10 Startup India Schemes? | Fi Money&nbsp;</a></p><p><a target="_blank" rel="noopener noreferrer" href="https://fi.money/blog/posts/what-are-the-benefits-of-a-personal-loan">What are the Benefits of a Personal Loan | Fi Money&nbsp;</a></p><p><a target="_blank" rel="noopener noreferrer" href="https://fi.money/blog/posts/how-to-get-good-interest-rates-on-personal-loans">How to Get Good Interest Rates on Personal Loans? | Fi Money&nbsp;</a><br>&nbsp;</p>

Business Loans vs Personal Loans: How Do They Compare | Fi Money

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