A business or start-up requires capital support in order to grow in the initial years. Banks and NBFCs provide business loans designed for this purpose. Business loans charge competitive interest rates. However, accessing a business loan on extremely short notice can be tricky. A business loan requires collateral and the documentation needed to file a loan application can be extensive. The entire process can be a bit overwhelming for small business owners.
So, what if you were told that there are other alternatives to fund small businesses?
A business owner has an option to use his/her personal credit card but that is quite an expensive proposition since they charge 2-2.5% per month on the outstanding balance. What else can be done as a short term arrangement that proves to be quick, convenient, hassle-free and most important of all collateral-free?
Yes, you guessed it right – a personal loan! A personal loan can be a godsend for a small business when
- The requirement is small up to Rs 10,00,000
- The tenure is short between six months and five years
- The interest rate is lower than that of credit cards
- The need for the loan is urgent say 1-3 days
- No collateral is available with the borrower to pledge
If you tick these boxes, you can apply for a personal loan at LoanTap. If you are an Indian citizen or resident over the age of twenty-three and you have a monthly income of over Rs. 30,000, you can apply online and upload the following documents –
- PAN Card
- Aadhaar Card/ Driving licence/Passport
- Latest Income Tax Returns of the Business
- GST Returns
- Bank Statement of the Business Account
Based on these, the LoanTap team will evaluate your application and if found satisfactory the money will be disbursed within 24-36 hours.
How does a Personal Loan score?
- Easy and Hassle-free processing
- Available on short notice
- No collateral
- Tax Benefits
- Prepayment option
- Cheaper than a credit card
Easy and Hassle-free processing
Compared to a business loan, a personal loan is easy to process. It is convenient and hassle-free. It requires minimum documentation, unlike a business loan which needs a lot of paperwork to be submitted. This is one parameter on which the personal loan handsomely scores over the business loan.
Available on short notice
A small business owner may be in urgent need of funds that cannot be put off for a week or two. Under such circumstances, it is difficult to expect a business loan to be processed. A personal loan, on the other hand, can be processed within 24-36 hours. So, urgent needs can be managed for a short duration with personal loans even though the interest rates are higher than business loans. They are cheaper than using credit cards and that is the reason why they are an attractive alternative.
Business loans are secured loans and require collateral. A small business or start-up may struggle to provide collateral. If the requirement is a matter of a few lakhs, it is quite practical to go for a personal loan. You receive the disbursement within 24-36 hours and you can pay off the loan over the agreed tenure. This will help you to manage your cash flow in the near term.
If the loan is taken for business expansion and growth, you can claim the interest paid on the personal loan as a tax deduction. You will need to show sufficient proof that the investment has helped the business to grow its revenue. This is an added benefit for the borrower to save on tax.
It is a known fact that personal loans are more expensive than business loans for the simple reason that they are unsecured. However, they are a very good short term option. If you are sure that you can pay off the loan before the end of the tenure, a personal loan is a prudent option. You can take the loan for the maximum tenure of five years to keep the EMI low. After servicing the loan for six months, you can choose to prepay part or all of the outstanding loan and reduce the interest cost. There are no prepayment penalties after six months of servicing the loan regularly. This is a good point to bear in mind while choosing a personal loan for your business.
Cheaper than a credit card
A credit card is the simplest instant financing option available. You can swipe the card and use the credit limit. The only catch is that if you do not pay the outstanding on the due date, interest will be levied at 2-2.5% per month i.e. a whopping 24-36% per annum. So, be careful before you use that card! A personal loan, though not instant, can provide you with funds within 24-36 hours. If you can estimate your need and hold on for 1-2 days, a personal loan will serve the purpose better than a credit card. You can opt for fixed or floating interest rates depending on the interest rate cycle. You are better off servicing a personal loan than defaulting on your credit cards.
As you can see, personal loans need not be used only for an expense or a holiday or a wedding. You can use a personal loan to boost your business or start-up in the initial years too. Whatever be your financial need, we are ready at LoanTap with a solution that will be the best fit. Browse https://loantap.in/ for all the information you need about personal loans for business expansion.