India has seen rapid growth in entrepreneurship in the recent past. People are now getting more inclined towards starting their own venture rather than entering into a well-paying job. Well, doing business is great, but at the same time, it also requires a lot of funding. We have emerging funding sources like VC, crowdfunding, etc. but business loans are still popular over these. However, it’s important to note that not everyone can get a business loan. In such cases, personal loan comes as a great help.
We already know that personal loans have no restriction on the use of money. You can use it for holidays, marriage, renovation, education, and even business. Many people who cannot get a loan or are in some urgent need of money use personal loans for business. However, there are certain things that you need to consider before you apply for a personal loan.
How can you use a personal loan for business?
As mentioned above, there is no restriction on the usage of the personal loan amount. You can use it for starting your business or meeting daily business requirements. Let’s consider different cases where and how you can use a personal loan for your business:
- Expansion of business- One of the common reasons that people opt for a business loan is that they want the money for the expansion of their business. Since there is no restriction on using the personal loan amount, so, people who are running the business make use of the personal loan amount to expand their existing business.
- Starting a new business- We all know that personal loan is availed in case of emergency or when someone needs funds to meet his/her expenses. Well, it has also become a great way to start a new venture. However, you must take the interest rate into account while availing the personal loan.
- Paying off old debts to take a business loan- Business loans are formulated especially for business purpose. There are different types of business loans for expansion, buying equipment, etc. But, banks only offer business loans to those who have a good track record of repayment and CIBIL score. In case one fails on these aspects, then he/she needs to restructure previous records.
The personal loan amount can be taken to clear the old debts and bills, which will eventually help in rebuilding the credit score. Now, an important point to note here is that you can only get a Axis Bank personal loan with a good credit score. In case you don’t have that, you must seek someone’s help. The person can take a loan, and you can repay them.
- Funding daily business needs- Cash crunch may occur any time and one may not have enough funds to manage daily expenses. At times, you might need funds to run your daily chores in your business. You can take a personal loan to fund your daily needs on a temporary basis. Once funds are available, you can repay the amount in full and avoid making a dent in your credit score.
Things to Keep in Mind Before taking the Personal Loan for Business
With all these factors, the personal loan becomes a great way to help the businessmen start and expand the business. However, you must know that there are certain implications of the same.
Personal loan come at an interest rate- Well, availing a personal loan for business expansion and starting off the business is good, but they come at a higher interest rate. So, you must apply for this loan, only when you can repay the same on time. Failure of doing so will add a burden to you and will also impact your credit score. The interest rate may vary from bank to bank; for example, HDFC personal loan starts from 11.25% while for other banks, it would be different. So, it’s always good to do a comparative analysis of the personal loan interest rate before applying for the same.
Check your CIBL score- While the personal loan may look lucrative, but you can only get this loan if you have a good credit score. Banks often check the credit score to analyze your creditworthiness, and based on this score, they approve or disapprove the loan.
It’s a hassle-free loan- One of the reasons that people opt for a personal loan for businesses is that you don’t need collateral for availing this loan, thus, making it easy for the business owner to get a loan for business without the burden of collateral.
Flexible repayment- Yes, most of the banks offer flexible repayment of personal loan, thus making it easy for you to repay the loan.
To sum in simple words, a personal loan is a great option for those who are willing to start their business or expand it.
Personal Loan versus Business Loan
Well, there is a provision of opting for a business loan to start the business, but business loans can only be availed by those who have a pre-established business which is least a few months old. But that is not the case with a personal loan. The bank only looks at your credit score and supporting documents to approve your personal loan. You can use the personal loan amount for different purposes, including the start of a business.
Besides, business loans are of a higher amount, which is not the case with a personal loan. There is a cap on the loan amount. So, you can get only limited money which you can use for managing your office expenses or other costs.
Wrapping it up– Personal loan for business is a good choice, but you must take into account the pros and cons before applying for the same. Check with the banks and compare their interest rates before applying for a personal loan. You should also make sure to contact those banks first with whom you already have banking relationships as there are fair chances of getting personal loans at relatively lower interest rates.