Individuals, as well as businesses, often need finances to address personal and business needs. With an array of financial institutions offering loans, access to finances nowadays is easy. While one uses personal loans for meeting cash needs for home renovation, vacation, education expenses, etc, organisations take business loans for expansion, buying new equipment and employee training, among others. Though both are loans, the processing of these loans is different.
There is a marked difference in the eligibility criteria of a personal and business loan.
Personal Loan Eligibility Criteria
For a personal loan, one must be a citizen of India working with a public or private enterprise or an MNC. Based on the city of residence, lenders might fix a minimum monthly income below which one can’t apply for a loan.
Business Loan Eligibility Criteria
On the other hand, business loans are given to organisations with a business vintage of a few years. Businesses applying for this loan should have their income tax returns filed on a regular basis with turnovers being audited by a CA.
Just like the eligibility criteria, the documents required for processing the personal and business loans are different.
Loan Documents for Personal Loan
Though the exact number of documents differs across lenders, the documents required in general are:
- KYC document
- ID card of the employee
- Salary slips
- Bank account statement of the salary account
Loan Documents for Business Loans
Usually, organisations need to produce these documents for business loans:
- Passport size photograph
- KYC document
- Business proof showing business existence
- Bank account statement
- Other relevant financial documents as required
Need for Collateral
Being an unsecured mode of finance, personal loans don’t require any collateral. However, for business loans, some financial institutions may ask for a collateral they can fall back upon in case of non-repayment.
With the lending landscape undergoing a major change, thanks to the emergence of NBFCs, some lenders may also offer business loans without a collateral. Some of the leading NBFCs operating in the country are offering collateral-free business loans.
Since lenders need to look at several aspects before approving a business loan, such as the number of operating years, the way business owners plan to use the loan, revenue model, etc., the time taken for business loan approval and disbursal is slightly higher than a personal loan. However, it is essential to note that the loan amount of the former is higher than the latter.
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