4 Situations When You Should Apply for Personal Loan and Not Business Loan

Personal loan, as the name says can be taken for any personal reason. All you need to do to get this loan is to maintain a good credit score. Therefore it is processed without any mortgage unlike auto, business, or Home loan. All banks nowadays offer personal loans due to their increasing popularity. There are apps available on your phone for a personal loan or a personal line of credit. You might need a personal loan for buying an expensive phone, home renovation, or travelling.

Above all that, sometimes you might need to infuse your ongoing business with some money. Business Loan is available in the market. But, when compared to a personal loan, it requires more time, paperwork, and mortgage.

Let’s understand the scenario where it will be more productive for you to apply for a personal loan for business instead of a business loan.

Small Amount Required

If your requirement is within 6 digit small amount, it would be better to apply for a personal loan. Although unsecured small business loans are available in the market. But as I explained earlier, there is a lot of hassle in all other loans. It is better to save your time and energy by concentrating on your business instead of paperwork.

Collateral Not Available

Institutions providing business loans ask for collaterals as those loans are meant to be secured. In case you don’t have any collateral, it is better not to struggle there. Instead, apply for a personal loan from any leading bank. Mobile apps also offer a personal line of credit which you can use later according to your need. A personal line of credit makes you credit proof for both present and future once you get approval.

Short Repayment Tenure Required

There might be a case that you need a loan for a short term crisis. For example, buying some inventory or covering up for the credit gap. It makes no sense to invite trouble with lengthy applications and explanations. A personal loan’s repayment tenure is generally short. Although small business loan interest rates are lower in comparison to interest rates of personal loans. But if you are sure that you will pay the loan before time, it doesn’t possess a loss.

Urgency

“Time is Money”. Apply for a personal loan for business without any doubt if waiting for a business loan to get sanctioned may cost you more than the interest of a personal loan. I have made it pretty clear by now that getting a business loan approved is a cumbersome task. Institutions want their money to be safe. Thus, it takes time to convince them of the business loan. On the other hand, it takes a few days for a personal loan to get sanctioned. Even unsecured small business loans will take more time to get sanctioned than a personal loan.

No Other Option Available

There can be two scenarios as mentioned below.

Business Loan Can’t Be Approved: Institutions need a solid plan and market understanding from the entrepreneur before lending them money. If you are not able to convince them or you do not have enough collateral to support your standing in the market, a personal loan is your only option.

Other Loans Already Taken: If you have used all the other options of business loans available, you have to take a personal loan for business only.

Small Takeaway

Please do not forget that a personal loan is easy to get, but it is not given to everyone. If you have a history of bounced cheques, irregularities, or defaulting a loan, then it will be almost impossible for you to get it.

Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com.