Personal loan vs. business loan: which one should you choose?

Both a personal loan and a business loan put money in your account without collateral, and both are repaid in fixed EMIs. So which one should you apply for? It depends on who is borrowing, what the money is for, and how much you need.

The short answer

• Choose a personal loan if you are salaried, the need is personal (a wedding, travel, medical bills, a home upgrade), or you need a small amount quickly.
• Choose a business loan if you run a business with a filed track record and the money is for stock, equipment, expansion or working capital.

How they compare

• Who applies: a personal loan is taken by you as an individual. A business loan is taken by the business — a proprietorship, partnership or company — with the owner often as co-applicant.
• Eligibility: personal loans lean on your salary and credit score. Business loans lean on business vintage (usually 2 years or more), turnover, GST returns and bank statements.
• Amount: personal loans are sized to your salary. Business loans are sized to your cash flow and can go considerably higher.
• Interest rate: personal loans on the PaisaFin panel start from about 10.49% p.a.; unsecured business loans from about 14% p.a. The rate you get depends on your profile.
• Documents: salary slips and bank statements for a personal loan; ITRs, GST returns, current account statements and business proof for a business loan.
• Tax: interest on a loan used for business is generally a deductible business expense. Interest on a personal loan used for personal purposes is not. Speak to your tax adviser about your case.

When a personal loan makes sense for a business

If your business is new, has no filed returns yet, or you need a small amount fast, a personal loan in your own name can be simpler. The trade-off: the loan sits on your personal credit report, and the amount is capped by your personal income.

Compare before you apply

Whichever you choose, look past the headline rate. Compare the processing fee, prepayment charges and the total amount payable across lenders. On PaisaFin you can compare eligible offers for both loan types side by side — and you are under no obligation to accept any offer. Approval and final terms are determined by the lender.