Business Loan Vs Personal Loan: Understanding the Differences



If you’re an entrepreneur or simply someone who wants to invest in their career, travel plans or education, a loan is a great option for extra funds. However, it is vital to understand the types of loans that are available so that you can make an informed decision before availing of funds.

We’re here to answer your questions about Business Loans and Personal Loans so that you can get the best credit option out there.

What are Business Loans?

The meaning of the term Business Loan is clear in the name itself. Online Business Loans are given for business purposes only. They are intended to either expand the infrastructure of a business or as start-up capital for you to begin your own business.

Traditional business loans have a lengthy process for approval wherein you’ll be asked to provide collateral as well as an overview of your business credit (business plans, account & profit statements etc.). However, small business loan companies offer unsecured loans of smaller amounts that have shorter disbursal periods and are more flexible.

Related Blog – 5 Money Management Tips for Small Businesses

Advantages of Online Business Loans

  • Tenures are flexible.
  • Collateral is not required, it can be unsecured.
  • Granted at relatively lower interest rates.
  • Tax benefits can be availed on a business loan.

Disadvantages of Online Business Loans

  • They can be used for business purposes only. If you would like to use the funds for other plans, you’d be better off with a personal loan.
  • Some business loans must be secured against assets.
  • It can be tough to qualify for a business loan.

What is a Personal Loan?

A Personal Loan is a type of unsecured loan that can be availed for any purpose. You don’t need to provide collateral for a Personal Loan and if you’re facing a financial crunch, this is the perfect option for you. Personal Loans are granted based on criteria such as employment history, credit score, and income level.

Related Blog – Too Many Debts? Here’s Why a Personal Loan Is the Best Way Out

Advantages of  Personal Loans

  • Personal loans are multi-purposes.
  • The application and approval process is shorter.
  • It’s a good option for emergency funds.
  • Both small and larger amounts can be availed.
  • No collateral is required; it’s unsecured.

Disadvantages of Personal Loans

  • Interest rates can be higher.
  • If EMIs are not paid on time, you’ll be subject to late payment fines.
  • Can contribute to a habit of overspending.

In Conclusion

When it comes to selecting your loan, there are both pros and cons for each type. You should choose a business loan when you are expanding an existing business or need larger start-up capital. Business loans are also perfect for those entrepreneurs who are looking for tax exemptions and deductions.

However, nowadays the lines are not so clear. If for example, you are trying to monetize a personal hobby such as baking, you might not qualify for a traditional business loan but a personal loan or an online business loan from small business loan companies is a better option.

When selecting your loan, compare lenders, interest rates, tenure periods etc. before availing of your preferred funds. It’s also important to understand that the best loan type is the one that meets your needs and means successfully.