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What Should You Choose Between Business Loan and Personal Loan?

What Should You Choose Between Business Loan and Personal Loan?

The loan is one of the most popular and exclusive services offered by banks. It allows you to use the money for various purposes for paying different kinds of expenses. These loans are of different types with different tenure periods, different interest rates. Two most common types of loans offered by banks are personal loans and business loans. In both of them, the general scheme is the same. The bank sanctions you the amount of loan and you need to repay the amount with interest in equated monthly installments. So, what are the points that make business loans and personal loans different? Which one is best for business? Dive into the article below to get acquainted with these questions.

Personal loans

Loans sanctioned for personal purposes such as weddings, renovating your house, medical emergencies are termed personal loans. These are particularly purposed to save you from the financial crisis. It’s the best way to cater to all your needs. Personal loans are usually given by commercial banks and non-banking financial companies. Personal loans are also called unsecured loans because it doesn’t compel you to mortgage your collateral with the bank.

Personal loans are multi-purpose loans. They can be utilized for any financial purpose; there are no regulations for use of the loan amount. These types of loans are regarded as a “Jack of all trades” owing to their multipurpose property. Very minimal documents are required for getting personal loans such as identity proof, income proof, address proof, etc. A good credit score and a healthy monthly salary are required to avail of the personal loan.

Business Loan

Business loans are specified for business purposes. These can’t be used for purposes other than business. All the business purposes such as infrastructure development, equipment, etc. Business loans can be used to fund the expenses for both established businesses for upgrading technology, injecting capital, etc as well as for startup planning and set up related things.  So, all the money needs can be met using business loans.

Business loan interest rates are desirable and reasonable. This is the most vital advantage of the business loan. In business loans, investors never interfere in the usage of loans as long as the amount is used for business purposes. This is the greatest advantage of a business loan over a personal loan. You are free to utilize the loan amount as per your requirement.  Another significant point of a business loan is you need not share the profits with the lender. The bank that offers you a loan is just concerned with the repayment of the loan amount.

Business loans are secured and unsecured based on the amount of the loan you need. In the smaller amount of loans collateral is not required in business loans but for the higher amounts collateral may be required. There are certain limits for the secured and unsecured types of loans. These limits depend upon the lender and may vary from lender to lender.

Comparison between personal loans and business loans based on different parameters

Lending terms and interest rates:

Funding a business with a personal loan means that you would have to deal with the higher rates of interest. There could also be higher rates of EMI payments in the personal loans. This shows that  It could be challenging for the business owners to deal with credibility and better lending terms in case of the personal loans. Personal loans aren’t ideal for entrepreneurs as well, because they might require to pay higher amounts especially if the business is in the nascent stage.


Usually, most of the Personal loans offered by various banks have short tenures as far as it is related to the repayment. These may be best for personal purposes such as loans taken for weddings, house loans but these short tenures can be of great loss for businesses. Businesses would be required to repay the amount in the form of EMIs every month. This affects the cash flow of business especially for the startups in the recent stages. Which leads to damage to the growth of the business.

Fund usage:

When the personal loan is taken for business purposes, an entrepreneur or businessman may end up using it for other personal emergency purposes. This indicated misuse of the existing funds and a lack of discipline. But the business loans ensure that the entrepreneurs use the funds only for business-related purposes. Business loans can be used for any purpose related to business growth but the business loans make sure that you don’t end up using loans for personal emergencies.


Personal loans can be availed instantly once the basic eligibility criteria are fulfilled. This way you can easily get loans for personal financial emergencies. Some people believe that getting a business loan is a long process and you have to wait a long time to get an amount in your hand. But there are certain government schemes such as msme loan which can be availed within very less time for the business purposes. You would require to do msme registration for your business and then you can apply for the loan online itself and get in within a few days. You can even get in within a week depending on the bank you choose for the msme loan.

Bottom Line

Businesses require loans for many different purposes. It includes capital needs, infrastructure development, investments in equipment and systems, expansion of the business area, etc. All these requirements of the business would need a large amount. This business loan is considered best for funding the growth of the business against personal loans.

So, to grow a business or starting a business, you should go for business loans. For setting up a successful and sustainable e.l business Entrepreneurs should apply ahead business msme loan rather than a personal loan. This can be perfect for taking your business to great heights.