Should I Take a Personal Loan to Fund My Start Up?

Personal loans are great financial tools for many people. They’re so popular that several companies offer them. But personal loans aren’t just for emergencies. You can use them for any personal project, from a home renovation to a wedding or your start-up.

A personal loan is a financial product that is used for multiple purposes, but most often, personal loans are for meeting short-term financial needs. 

Personal loans are typically unsecured, meaning borrowers don’t have to provide collateral to secure them. Personal loans can consolidate high-interest credit card debt, pay for unexpected expenses, or even fund a vacation. Personal loans are easy to get if you have a good credit score.

Can You Get a Personal Loan for Your Start-Up?

Your financial needs determine the answer. Personal loans may be used for anything. However, commercial loans are more specific to your needs. Personal loans may be used for commercial purposes since lenders do not limit how much money you can borrow.

Both loans are unsecured; thus, no collateral is required. Personal loans are only available in amounts up to Rs. 25 lakh, with interest rates beginning at 11%. Unsecured business loans, on the other hand, allow you to borrow up to Rs 50 lakhs with a starting interest rate of 17%. You may also get a company loan against collateral, such as equipment or real estate. Interest rates will be even lower if you secure your loans with collateral.

Personal Loans for New Businesses

A government-approved start-up loan is a form of personal loan that may be used for commercial purposes. Although aimed at firms, such start-up loans are unsecured personal loans.

They are intended to assist emerging firms in obtaining finance for a range of operations, such as advertising or purchasing stock or equipment. Businesses may apply for loans of varying levels and maturities, as well as additional mentorship and assistance as their operations expand.

In your application, you must provide details about your company and how you plan to utilize the loan, such as a business strategy and cash flow predictions.

However, just as with a traditional personal loan, you’d have to pass a credit check and demonstrate that you can make the payments even if your company operations do not go as expected.

How do you apply for a business personal loan?

Filing for a personal loan for a start-up is a simple and fast procedure.

Step 1: Determine your needs and how much you wish to borrow to start your company.

Step 2: Conduct research. Several internet resources may assist you in determining your credit score and qualification. Visit these websites to see whether you qualify for a personal loan. It depends on your prior loan and credit card payments.

Step 3: Select a bank or lender. Look around for the finest offers, either online or in person, and determine where you can maximise the benefits of your credit.

Step 4: Now that you’ve completed your research and decided on a bank, gather all the necessary documents, such as past bank records, IT return documents, proof of ID, and evidence of domicile, and go to the bank branch to qualify for your loan.

If you diligently follow the bank’s process and have a strong enough credit score, your loan will be authorised within a few days. As a result, using a personal loan to establish a company is more efficient and has a higher approval rate.

Benefits of a Personal Loan

1. Flexibility of use

There is no binding usage in a personal loan. One can use it as and when needed from the time of payout. Banks and NBFCs provide open-ended and closed-ended loans. It means closed funds are used only for the purpose it is taken. Open-ended loans can be used as per the user’s needs. Close-ended loans are car loans, home loans, study loans, etc.

A personal loan can be used for medical expenses, college tuition fees, wedding expenses, repaying multiple loans, etc. It’s not like a car or home loan. This financial resource can be used for any necessity without limitations. It’s an easy way to get out of the money crunch.

2. Easy Payout

Getting the personal loan pre-approved is usually instant. One should meet all the criteria when applying for an urgent loan. The usual time for loan payout is within 24 hours, or 72 hours at most. The time frame also depends on the lenders. 

3. Hassle-free payments

Personal loans give an easy way to repay the amount. EMIs, post-dated cheques, bank online transfers, etc. are some of the few methods of paying back. When applying for a personal loan, it is vital to know the payback format. The payback is usually done in equal monthly payments. One thing to pay attention to here is that EMIs should be pocket-friendly. Otherwise, it will be a needless burden on the finances. If the user chooses a longer payback tenure, the EMIs will be lower, and vice versa. 

4. Low Loan Interest Rate 

Before applying for a loan, the primary concern is the interest rate. The interest rates of personal loans are pretty low in terms of other loans. These attractive rates of interest raise the demand for personal loans. This perk enables fixed EMI for the whole period. Bankers are pushing to bring down the personal loan rate to attract users. It might be the best time to apply for a personal loan for any major cash outflow.

5. Income Tax Perks

The cherry on top of a personal loan is the TDS that can be claimed while using the amount. Users can use this amount for building a home or for higher studies. As per the legal books, the benefits can be up to Rs. 2 lakh. The tax benefits call for proper paperwork that shows where and how the money is used.

Conclusion

Getting a personal loan depends on many important factors. Keep all of the above pointers in mind to improve your chances of getting a personal loan with a lower interest rate. Also, banks look at how long a person has been working with their institution. If you have a good relationship with your bank and a good amount of money in your account, your chances of getting a loan go up. Once you get your loan, make sure to pay it back on time so that the next time you need a loan, your bank will be happy to give it to you.