× Home About us Contact Us Contributor Guidelines – All Perfect Stories Register Submit Your Stories
Personal Loan
By PARDEEP SHARMA 1,396 views

Here’s Why you Should Keep a Personal Loan and Business Loan Separate

NBFCs in India offer unsecured Personal Loans that do not require you to pledge any collateral. On the other hand, entrepreneurs can avail business loans that cater to all their commercial funding needs. However, you might get confused between the two when you need advances to run your company as both of them can fulfill the financial voids in your business.

Some opt for a Personal Loan to meet business and their own necessities. On the contrary, it’s advisable to choose business loans for financing your core company needs like overhead costs, a deficit in working capital, etc.

You can apply for Personal Loans to cater to your individual requirements and a business loan for commercial needs. Non-banking financial institutions bring Personal Loan pre-approved offers that make the process of availing funds much less complicated. These pre-approved offers are also available for business loans, home loans, and other financial products and services.

Now, there are reasons why you should keep these collateral free loan options separate.

Reasons to keep Personal Loan and loan for business distinct

1) End use of the advances

Personal Loans from a financial institution do not have any end-use restrictions. You can use it as a higher education loan, or even to finance your family trip.

However, through a business loan doesn’t come with usage restriction, it’s recommended not to use the credit for any purpose other than your business.

Keeping these two advances separate enables you to use them for specific purposes as and when needed and manage your money well.

2) Availing credit in the future remains secured

Opting for a Personal Loan for business purposes may hamper your chance of getting an additional credit in the future. You may face issues to avail advances in the future for individual use.

Note: A lender calculates your FOIR when you apply for a loan. Fixed Obligations to Income Ratio or the Debt-to-Income ratio lowers if you have more debts to pay in comparison to your income. Thus, it’s the ratio of your income to the monthly obligations, which also includes the EMIs when you repay Personal Loan.

Lenders ideally prefer your FOR to be around or less than 30%. Hence, take a separate business loan for your company. It’ll help you avoid problems if you want to avail Personal Loans for an emergency in the future.

3) Protects your CIBIL score

The financial institution looks for your CIBIL score when you apply for unsecured loans. A good score will help you to get Personal Loan at low-interest rates and of high amounts in the future.

However, taking a Personal Loan for business purposes may affect the score. Businesses come with uncertainty; it may become troublesome to repay the loan in case it fails. This will have a considerable negative impact on your credit score.

Hence, utilize a Personal Loan for individual purposes and business loan for your company.

4) Helps track your finances well 

You may use one of the advances as a debt consolidation loan, i.e. to pay off your existing debts. However, irrespective of the purpose, if you keep the two – business loans and Personal Loans – separate, it’ll enable you to manage your finances better.

You can keep track of when to pay your EMI dues and the amounts in case of the individual loan. And, for your business loan, your CA can keep track of the debt amount and other expenses enabling you to avoid all confusion.

Hence, avail loans according to your requirements and ensure a strategic money management. Choose a lender who offers benefits like instant approval, flexible tenor up to 60 months, minimal documents and qualifications, and other benefits.

Pardeep Sharma

Pardeep is an experienced financial analyst, researcher & writer. He has done MBA in Finance. He has worked extensively in the finance sector along with many organizations. He spends most of their time on the Internet reading finance related stuff and love to share my expertise with readers.