Personal loans vs Business loans

A personal loan is basically an unsecured loan which is specifically given to meet the loan seeker’s personal financial needs. As in there is no restriction put on the loan seeker, so as to use the funds for a specific purpose only unlike other kinds of loans such as home loans or automobile loans etc., where such a loan is granted only for buying those specific things only.

business loan is also an unsecured loan which is given specifically to the borrowers for funding a start-up, for business expansion, to repay the previously borrowed amount spent for the business purpose. It is a kind of loan which is given only for the purpose of starting a business or for its expansion.

The difference between a personal loan and business loans are as follows:-

  • Under personal loan, if you are planning for any renovations or in dire need of money for other purposes, then it is the best loan a borrower can ask for.


Under the business loan, it shall be taken only if you are an entrepreneur, then such a loan can be taken to make any sort of expenses like in personal loans.

  • Under the personal loans, such kind of loans are taken by the borrower so as to fund the daily life events or other personal expenses, Whereas under the business loan, are taken up so as to fund and meet the business related expenses such as for its renovation, expansion etc., it is very much similar to the personal loan, but in the business loan, such a loan is taken up by an entrepreneur only.
  • The personal loans could be taken by both an employer as well as an employee

Whereas a business loan is taken specifically by an employer only.

  • The rate of interest on a business loan is generally higher than the personal loan as even if there is a case of default in say 1 in 100 borrowers, then they have to regain the loss incurred by charging a higher rate of interest.
  • Comparatively it is much easier to attain a personal loan than a business loan since in the personal loan, it can be attained by just showing the statement of account and it can be easily presumed whether the borrower would repay or not whereas under business loan, the borrowers generally don’t ask for small amounts, so it increases the risk to recover the whole amount.

Just like under personal loans no collateral is taken same as in the case of business loans too. And the factor that matters the most in attaining both kinds of loan is a high credit score. The banks or financial institutions hesitate in giving business or personal loans to loan seekers who have low credit scores. The credit scores are calculated by overlooking various factors such as the income and debt statement, past records, the time taken to pay the last loan amount, whether there was a failure on the part of borrower to repay the loan on time etc.,

All of the above are the basic yet significant distinction between personal loans and business loans.

By | 2017-11-06T13:28:17+00:00 November 4th, 2017|Business Loan, Personal Loan|0 Comments

About the Author:

Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

Leave A Comment