How To Use A Personal Loan To Fund A Small Business
Discover how personal loans can help to fund your small business. This guide covers everything you need to know about using a personal loan to finance your business dreams.
Securing timely finances is important for the growth and success of any business. Even if the business has potential to grow, absence of adequate and easily accessible credit can be its biggest impediment. India has a budding entrepreneurship culture. The government has also recognized this and has launched a number of schemes to help small businesses access the formal credit market.
Good part is that there are many options available to small businesses, including start-ups, to get credit from formal institutions. Even banks and non-banking finance companies have also made it easier for small businesses to get loans. Two of the most common loans offered by lenders are small business loans and personal loans. As the name suggests, a small business loan is opted for a specific purpose of funding the business. Personal loans, on the other hand, can be taken for a number of reasons such as meeting emergency expenses or large spending like weddings. However, very few people are aware that personal loans can also be taken to fund a small business. While both these loan products are the potential source of finance for small businesses, there are key differences. So which one to choose? Now that depends on the eligibility criteria but personal loans have some key advantages.
Personal Loans
Personal loans are unsecured in nature, which means lenders do not ask for any collateral. Borrowers applying for personal loans to fund their small businesses will be given the loan based on their credit worthiness. Personal loans are especially suited for entrepreneurs who are starting a business as well as for those small businesses which are very young. This is because while giving a business loan, lenders ask for collateral. New small businesses may not have adequate assets that can be given as collateral. Lenders also ask for an established track record of business performance as well as audited results to give small business loans. Both these make personal loans better suited to fund small business, especially when the funding requirement is relatively smaller. Some of the other key benefits are as follows –
• There is no restriction on the usage of funds. Borrowers are free to decide on how they will spend the money. This includes renting out a new office space, purchasing required machinery, hiring employees, stocking up on inventory, spending on marketing, etc.
• The disbursement of funds in personal loans is quicker. In fact, many customers of banks are offered pre-approved personal loans, which can be disbursed within a short time.
• Personal loans are offered based on the credit history of the individual, irrespective of whether the money is spent on business or otherwise. Borrowers with good credit history can bargain for a lower interest rate.
Before opting for a personal loan to fund your small business, it is important to understand the following aspects –
Zaroorat aapki. Personal Loan Humara
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• Interest Rate –
Since personal loans are unsecured in nature, they carry higher interest rates. For this reason, it is important to budget for a required amount and then apply for a loan. While you may get a higher loan amount, the EMI will also increase. Hence, applying only for the required amount is necessary. Opting for a higher amount with costly EMIs can potentially lead to a debt burden, especially if the business does not grow as projected.
• Repayment –
Tenure for repayment of personal loans is usually three to five years. But the borrowers have the flexibility on deciding the repayment period based on the projected cash flows from the business.
• Business As End Use –
While lenders do not ask for the purpose of opting personal loan, it is a good idea for the borrowers to use the money for funding small business if the reason for taking such loan was business purpose. Timely repayment of such loans is good from the point of view of credit history.
• Documentation –
Before applying for personal loans, borrowers must keep all the required documents such as a copy of PAN card, Aadhaar card, and last three months of bank statement ready. Submitting all the documents on time could fasten the process of getting the money.
• Terms And Conditions –
It is important to understand other charges such as foreclosure or pre-payment charges, penalties along with other terms and conditions.
Conclusion
Personal loan can come handy to support small businesses as it can be availed with ease. At IIFL Finance, the application can be made online and the entire process is hassle free and transparent. IIFL Finance offers instant personal loans of up to 5 lakh rupees with repayment period ranging from 3 to 42 months. Interest rate starts at 12.75%.
Zaroorat aapki. Personal Loan Humara
Apply NowDisclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.
