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Personal loan and business loan are the two popular choices of loans Singapore. People mostly go for these two loans. You take a business loan if you run an organization. You cannot use it for any other purpose than business. But you can use a personal loan for anything you want. You have complete liberty to use this loan money anywhere you want.
Many times people get confused when they have to choose between these two loan types. You need to understand these loans thoroughly to make the right choice.
Personal Loan:
A personal loan is given to an individual, not the company. You can use this loan for personal use. These loans are unsecured. You don’t need to keep your property as a security to get this loan. You need to provide your personal credit history to get this loan. If you have a good credit history, you can easily get this loan. It makes you personally liable to pay back the money. If you don’t pay it back, it will become a personal liability. The tenure of this loan is very less. You can get this loan only for a short period. Usually, the tenure is 1 to 5 years. The amount of the loan depends on your salary and the institution. The interest rate is very high, though. It can range anywhere 15 to 25%.
Business Loan:
You can use this loan only for business purposes. Most businessmen use this loan to buy new machinery, technology, and working capital requirement. The rate of interest depends on the credibility of the company. If the company has a good credit score, you can get the loan at a low-interest rate. It is less than a personal loan. You get various tax benefits with this loan. However, it is quite difficult to qualify for this loan. The documentation process is quite strict. You need to provide different documents. The chances of loan rejection are very high.
Loan Approval:
You will only get the loan if it is approved. You need the approval to get the money. The approval process for both the loan type is different. Personal loans get easy approval while business loan goes through a strict approval process.
Personal Loan Approval:
There are two basic requirements to get approval for a personal loan. You need a good credit score. You need a stable income. The debt to income ration should be less. If your credit score is bad, you need to go with secured loans. These loans need collateral security. You also need to pay a high rate of interest. You can easily get approval for $1000 to $50,000 personal loan.
Business Loan Approval:
Your credit score should be excellent if you want to apply for this type of loan. The lending companies will check your score along with business credit. You need to submit revenue statements. To get this loan, your business should be in the market for a few years.
If your credit score is bad or if your company is new, you will get a loan from money lenders at a higher rate of interest. You need to show your profit and cash flow proof. You need to submit your business plan and show that your business is legal to get this loan.
You can easily apply for a large number of loans. You can get the loan for $500,000. Sometimes you can even get a loan worth $1 million. The tenure goes up to 25 years.
Advantages of Personal Loan:
- Easy Approval: When you take a personal loan, you don’t have to worry about getting approval. You can easily get approval for a personal loan as the process is quite simple. The bank only needs your credit score and income proof.
- Faster Funding: Another advantage of personal loans is that you don’t have to wait for a long period to get the money. In some banks, you can get instant cash once you get the approval.
- No Collateral: You don’t have to keep any collateral security when using a personal loan. These loans are unsecured. You can get this loan without providing any security for it.
Advantages of Business Loan:
- Separate Finance: When you use a business loan, you can easily separate your personal finance from your business finances. You can take advantage of the tax deductions on business loans.
- Limited Liability: If you cannot pay back the business loan, it becomes a business liability. But when you are not able to pay a personal loan, it becomes a personal liability.
- Business Credit: Business loan helps you to build business credit. If you take a loan and pay it back on time, you will build business credit. With good business credit, you will easily get another loan in the future.
- Huge Amount: With a business loan, you can take a large amount of loan. Unlike a personal loan, you can take loans up to $1 million for business.
- Low Interest: The interest rate of business loans is less than the personal loan. You don’t have to pay a huge amount of money as interest as business loans are more secure. The interest can range from 2% to 13%, depending on the amount and the business credit. Personal loans can go up to 36%.
Verdict:
Both types of loans are suitable as per different circumstances. If you already have a business running and want a new loan, you can go with a business loan as the interest rate is less.
If you are new in the business, you will not have enough documents to get a business loan. You can take a loan for business, which is provided by the government.
If you don’t have any other option, you can go with a personal loan as there is less documentation. You can easily get a loan without much wait.
If you are in urgent need of money, a personal loan is best for you. You will get instant money with a personal loan, and the approval is easy to get.
