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Can You Take a Personal Loan to Fund Your Startup?

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03 Oct 2021 | 5 min read

The quick answer to this is YES! Yet, you must have the clarity between a Personal Loan for business and a Business Loan. 

Both of the loans are different and meant for varying objectives, but in many cases, Personal Loans have the tendency to be used for business purposes. 

Therefore, it’s crucial to understand precisely if you should do this and under what situations it stands out to be sensible to use a Personal Loan for your business. Read on to figure out the answer in detail. 

Personal Loan 

  • Personal Loans are aimed at individuals who may be in need of money to meet some sort of purpose. 
  • The needs can range from buying a gadget to tying a knot with the better half. 
  • Personal Loans offer the flexibility to utilize the funds for any objective. 
  • The repayment term on such loans stands low, but the interest rate stands to be high. 
  • Personal Loans do not need any sort of collateral, which is one of the core reasons behind their popularity. 
  • The decision on using a Personal Loan for business is totally dependent on a number of things. Thereby, the needs must be looked upon carefully. 

Business Loan 

  • Business Loans are of different sorts, viz. equipment financing, merchant cash advance, short-term loans, line of credit, etc. 
  • They are for a certain objective and are available to facilitate a business is running it and scaling up. 
  • The amount available, loan term, and terms and conditions of the loan are fixed on the basis of the borrower profile and the loan purpose. 
  • The Business Loan interest rate is competitive but needs collateral to be pledged as a security. 

Why Choose a Personal Loan to Fund Your Start-Up? 

Following are the reasons why a Personal Loan for a business can come in handy for your start-up idea. Take a look at them: 

Nominal Requirements 

  • If the fund amount needed is comparatively small, you can turn around a Personal Loan. 
  • The disbursal process of a Personal Loan is hassle-free and requires nominal documentation as compared to a Business Loan. 
  • If you need the amount in a few lakhs, you can turn around a Personal Loan, it will be a good choice for you in that situation. 
  • Loan Amount and Repayment Term 
  • If you need a loan just to get over a temporary shortfall in money, it may make sense to apply for a Personal Loan for business. 
  • Although Business Loans take care of such situations, the relative ease of getting a Personal Loan makes it appealing. 
  • If you’re sure that you can pay off the loan amount within the stated time or make a pre-payment of the loan, you can consider opting for a Personal Loan for business. 

Collateral Requirement 

  • Since Personal Loans are unsecured, you do not need collateral to get them. 
  • Contrarily, Business Loans are almost secure in nature, which means you will be required to pledge collateral against funds. 
  • If you don’t have collateral as security or don’t want to give one, Personal Loan can come in your favor as a good choice to elevate funds. 

Processing Time 

  • It takes time to get approval on a Business Loan and for the funds to finally get credited into your account. 
  • Business Loans require more documents as compared to Personal Loans. 
  • It takes time to get the documents in order and then to get the loan approved. 
  • If you’re in urgent need of cash and can’t afford to wait, a Personal Loan can be approved within a number of days. 
  • The choice between a business and Personal Loan relies upon the exigency behind the need for funds. 

Moreover, Government of India Loan Schemes for Small Business StartUp are also available in the financial space. In addition to this, you can also avail of Startup Business Loan 2022, to say particularly, you can turn around Start-up India Scheme 2022 too. 

Conclusion 

To conclude, if you are seeking to get funds for your startup then you can consider Personal Loan and Business Loan as well. 

Yet, it depends upon the loan amount you require - if you do not need so much means your need is just for a few lakhs, you can consider a Personal Loan for a start-up, but if you need a bigger amount then you can turn around a Business Loan. 

Moreover, you can grab the best deal on both sorts of loans from Afinoz simply by downloading the official Afinoz instant loan app from the Play Store and carrying out the loan process. 

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