Before making a comparison between the processing of personal loan and processing of the business loan, it is first important to understand both personal loan and business loan in isolation.

What is Personal Loan?

It is a kind of unsecured loan issued to the person so that they can manage their expenses such as education, medical, renovation, wedding, etc.

What is a Business Loan?

It is a kind of both secured and unsecured loan issued by the bank to manage & grow business.

What is the eligibility criteria for both Personal & Business Loan?

Personal LoanBusiness Loan
  • The minimum age of the applicant should be 21 yrs and maximum age should be 65 yrs
  • The applicant should be a citizen of India
  • Applicant should be salaried and the minimum income should range from Rs 4000 to Rs 20000 (varies as per the city)
  • Applicant should be employed for 2 yrs
  • The minimum CIBIL score should be 750 to apply for a personal loan
  • The business of the Applicant should be making a profit, at least for the past 2 yrs.
  • Should have business vintage for at least 2 yrs
  • The applicant should maintain a minimum turnover for the respective loan amount 
  • The minimum CIBIL score varies from bank to bank in case of business loan
  • Any applicant who is self-employed and files for income tax return regularly can apply for the business loan
  • Application by co-applicant is optional & not mandatory for business loan application.

What are the documents required for Business loan & Personal loan?

There are some common & some different documents for both Business & Personal loan

Personal LoanBusiness Loan
  • KYC document such as Aadhar Card, PAN card, etc
  • ID card of the employee
  • Salary slips of the employee
  • Bank account statement  
  • KYC document such as Aadhar Card, PAN card, etc
  • Passport size Photograph
  • Business proof showing the existence of business
  • Bank account statement
  • Latest ITR along with computation of Balance Sheet, Income & Profit & Loss a/c for the last 2 yrs.
  • Last 3 years audited financials
  • Other relevant documents are Sole Proprietorship Declaration, Memorandum of Association/Article of Association certificate

Which is a better Personal loan or Business Loan?

Points of ComparisonPersonal LoanBusiness Loan
  • Interest Rate
The rate of interest majorly remains fixedThe rate of interest varies
  • Maximum Limit
The maximum limit of personal loan is up to Rs 15 Lakhs to Rs 20 lakhsThe applicant can take loan up to Rs 50 lakhs and more
  • Credit Score
A credit score is the most important factor for getting a personal loanA business loan is not provided based on only a credit score but on other factors such as business vintage. Bank statement, turnover, etc
  • Tenure
A personal loan is generally for fixed tenure i.e. 1 to 6 yrs.A business loan can be for both short and long term
  • Disbursal
The personal loan gets quickly disbursed if the KYC and the credit history is appropriateIn business loan, the documentations are more and the processing and the verification takes slightly more time
  • Usage
A personal loan can be used for any big and small expenses such as expenses for travel, wedding, renovation, shopping, etc.The business loan should be used for the activities related to business such as working capital, expenses, purchase of plant & machinery, purchasing raw materials and the amount cannot be siphoned off for any personal expenses.

 

Apply for Business Loan

We can see from the above chart that the business loan has more flexibility in terms of tenure, amount limit, selection criteria whereas Personal loan is flexible only on usage. The purpose of both the business & personal loan is different and neither of them can overlap each other.

Personal Loan & Business loan details in Pune

The comparison for business loan & Personal loan has been shared  below for Pune City as an example

ParametersPersonal LoanBusiness Loan
Interest Rates10.99% – 20.75%12% – 27%
Processing Fees0.99% – 3.00%Nil – 3.00%
Prepayment ChargesNil – 5.00%Nil – 5.00%
Cibil Score Min. 750Varies as the NBFC provides loan even at a Cibil score below 750
Lowest EMIRs 2174 per lakhRs 2594 per lakh
Repayment PeriodUp to 7 yrsUp to 15 yrs

The applicant needs to understand the purpose of taking a personal or business loan. It should not be taken when there is no requirement, otherwise, the loan turns out to be a liability and missing out of instalments impacts the credit score negatively resulting in non-eligible for future loans even when the applicant has a strong desire for it.

Whereas, if the personal & business loan is taken in a planned manner, it turns out to be a good investment that pays back.