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Business Loans vs Personal Loans

In India, both banks and non-banking financial companies disburse personal loans much faster than business loans. A borrower can use the personal loan proceeds for a number of purposes. Hence, many entrepreneurs opt for personal loans to meet working capital needs or improve cash flow position of their enterprises.

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Business Loans vs Personal Loans

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  1.  In India, both banks and non-banking financial companies disburse personal loans much faster than business loans.  A borrower can use the personal loan proceeds for a number of purposes.  Hence, many entrepreneurs opt for personal loans to meet working capital needs or improve cash flow position of their enterprises.  As an entrepreneur, you must remember that lenders provide personal loans to individual borrowers and not businesses.  Also, each of the loan products has its own pros and cons.  Hence, you must understand the important differences between business loans vs personal loans to choose the right business financing option.

  2. Important Differences between Business Loans and Personal Loans Types of Loans  The personal loan products are designed for individual borrowers and personal usage. Some of the personal loans are general purpose, whereas others are specifically purposed. For instance, car loans and home loans are specifically purposes loans, whereas term loans are general purpose personal loans.  A borrower can use the general purpose loan proceeds for a number of legitimate purposes. On the other hand, business loans are intended for enterprise users. The borrower has to use the business loan proceed for starting or expanding his business.

  3. Lending Limit  The limit of personal and business loans vary from one lending institution to another. But the lending limit for business loans typical remains higher than business loans.  Hence, an entrepreneur can use general purpose personals loans to meet his business’s working capital needs. But he can always avail addition credit by opting for business loans instead of personal loans.

  4. Rate of Interest  The interest rate differs from one personal load product to another. Normally, lending institutions charge interest at a higher rate on unsecured personal loans than secured personal loans.  Many lending institutions even allow borrowers both fixed and variable interest rates.  The interest rate on business loan products also varies from one lending institution to another. However, most lenders provide personal loans at a much higher rate than business loans.

  5. Repayment Period  Both personal and business loans can be either short-term or long-term. Normally, the tenure of specific purpose personal loans remains higher than the tenure of general purpose personal loans.  But the repayment period of business loans always remain higher than the repayment period of personal loans.  An entrepreneur can avail business loan to repay the debt without impacting his business’s cash flow position in the short run.  He can even opt for certain technology-driven business loan products to repay the debt through daily installments.

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