Ramu owns a flower shop in Delhi, NCR. During the lean season, his monthly income is around ₹,35,000. But during the festive time, he earns up to ₹,60,000 per month. He started his business with the help of a personal loan of ₹ 300,000 with 15.5% per annum for 3 years in 2022. In the last two years, Ramu has earned more than his loan and is also successful in his business.
| Lean Season | Festive Season |
| ₹35,000 | ₹60,000 |
| Loan Amount | ₹300,000 | Monthly Income of Lean Season and Festive Season |
| Interest Rate | 15.5% | ₹ 35,000 + 60,000 = ₹ 95,000 |
| Tenure | 3 years | 8 Months’ income of Lean Season |
| EMIs | ₹10,473 | 35,000*8 = ₹ 2,50,000 |
| Total Loan Amount | ₹377,035 |
You cannot apply for a business loan in Delhi, NCR, with a poor credit report. That’s why a personal loan is a suitable option. Do you know how it helps you in starting your business? This blog enumerates the benefits of a personal loan to start a small business.
Personal Loan: Introduction
A personal loan is a financial tool that provides immediate funds for your financial needs. It is an unsecured loan without any collateral. Due to this benefit, many people in India avail personal loans. In India, the personal loan will increase to 14% in 2024. The flexible tenure and discounted interest rate during festive times, help many to expand their business.
Benefits of a Personal Loan
- Instant Approval: Personal loans have instant approval in the bank based on your credit report. The emergence of digital platforms and online portals processes the loan application and disbursement quickly.
- Flexibility: The instant access to personal information can be used flexibly. It can be used for various immediate needs. Due to their flexibility of usage, personal loans are very popular.
- Collateral-Free: It is an unsecured loan that does not pressure you to pledge your assets as collateral. This is the key feature of a personal loan.
- Access to Funds: A good CIBIL score can bring a massive amount of funds. Entrepreneurs who need immediate funds to meet their business goals can opt for a personal loan.
- Credit Score: When you repay your loan without defaulting, your CIBIL score improves drastically. This credit history helps you secure more loans in the future.
Personal Loan to Start a Small Business: A Comprehensive Guide
Business loans have different types, such as lines of credit, working capital, equipment financing, short-term loans, long-term loans, and many others. The primary objective of any business loan is to enhance the operation of a business. Based on collateral, CIBIL score, and other criteria, a business loan is sanctioned.
When you want to start a business, most will advise you to take a business loan. However, banks have criteria and eligibility to sanction a business loan. Hence, one cannot take a business loan immediately. The decision to choose a personal loan depends upon certain factors. After consideration, you can opt for a personal loan.
- Requirement of Capital: If your requirement for funds is small, you can opt for a personal loan. All the processes involved in it are easier, with minimal documentation. But if you need more money, you should choose a business loan. For example, a personal loan’s minimum amount is ₹3,00,000 to ₹1,00,00,000.
- Tenure: If the need for the fund is to cover only a temporary shortfall, you can opt for a personal loan. Business loans come with larger tenures and larger amounts. The repayment period is also shorter in a personal loan, which is exactly the opposite of a business loan. For example, a personal loan’s tenure is 5 years to 7 years.
- Loan Approval: A personal loan requires less approval time. With a minimum KYC document, you can apply for a personal loan. Business loans require more time for verification. All documentation needs to be assessed properly before sanction. For example, personal loans are sanctioned in 24 hours.
- Collateral: A personal loan is a collateral-free loan. It comes under the category of an unsecured loan. On the other hand, a business loan is a secured loan and needs collateral.
- Interest Rates: A personal loan comes with interest rates of 10.5% to 16%. But the interest rates for business loans start at 16% and go as far as 26%.
Conclusion
If the business is small with below one lakh turnover, a personal loan is the best option. The instant approval and disbursement process enables a budding entrepreneur to start a business. If the same business has more turnover and needs to expand its output, you can opt for a business loan. Both loans have benefits and advantages. Choose a type according to your financial needs.