With a loan, you’re provided with the financial assistance you need for any expense. A bank sanctions a specific loan amount, which you’ll need to return within a particular time with the stated interest rate.
Depending on your needs, there are two most popular types of loans: personal loan and business loan.
What Is a Personal Loan?
A personal loan is an unsecured credit that a financial institution grants you. Based on your employment history, income level, repayment capacity, credit history, and profession, you’re judged whether you’re eligible for this loan.
Also known as a consumer or multi-purpose loan, it’s meant to be given to curb your immediate and planned needs. Whether a medical emergency or a wedding, a personal loan will aid your financial crisis.
What Is a Business Loan?
A business loan can be availed by business owners to meet their planned or urgent financial needs. Before setting a business, you need enough capital to fund start-up expenses or expansion expenses. For this, you can take financial assistance from financial institutions.
A few business owners use this financial aid to pay wages and salaries. While some use them for projects, inventories or office supplies.
Are You Eligible for Applying a Personal and Business Loan?
Before applying to either of these loans, you’ve to follow the below eligibility criteria:
What Are the Documents Required for Personal and Business Loan?
You’ve to tick the necessities like KYC documents, know what is KYC before applying for a personal or a business loan. Here’s what you’ll need:
|You need KYC documents like Aadhar Card, PAN card.||You need KYC documents.|
|Your ID card, salary slips and bank account statement.
|Additionally passport size photograph, bank account statement and business proof.
Latest ITR with balance sheet, income and profit and loss a/c of the last 2 years.
|Audited financials of the last 3 years.|
Documents like Sole Proprietorship Declaration, Memorandum of Association/Article of Association certificate.
What Are the Advantages of Personal Loan?
The biggest advantage of a personal loan is that it’s a multipurpose loan. Moreover, there’s no regulation on how you can use the cash. Whether it’s a vacation or a high-end gadget you desire, this loan can fund anything!
Minimal documents are required like income, address and identity. The loan is usually processed quickly and disbursed in a day. There’s no collateral, less paperwork and seamless disbursal of loan.
What Are the Advantages of Business Loan?
A business loan is highly attractive because of the reasonable interest rates. Moreover, similar to the personal loan, the lender doesn’t interfere with the loan usage as long as it goes into a business-related expense.
Unless the lenders are investors, you don’t have to share your business profits with them. Business loan comes secured as well as unsecured. You don’t need to pledge collateral on a smaller amount. The lender will determine the limit of your loan.
Is There a Need for Collateral?
A personal loan doesn’t need collateral since they’re unsecured. Learn more about personal loan without collateral. But, some financial institutions may ask for collateral if you fall back in repayment. However, as the lending landscapes are changing, some of the top NBFCs are offering collateral-free business loans!
Take a loan only if you’re in absolute need, or else it becomes a huge liability. Moreover, have timely repayments because missed instalments will impact your credit score negatively.
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, and 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 firstname.lastname@example.org.
Also Read: QuickBooks Error 404