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Personal Loan Vs. Micro Loan For Business: Which Is Better?

Team BankBazaar
·3-min read

Setting up your own entrepreneurial venture is exciting. But establishing a business requires financing. Loans help entrepreneurs get their ventures going. However, sometimes they have trouble deciding which loan option is best for them. Microloans and personal loans are credit instruments which are easy to avail and can help budding entrepreneurs finance their ventures.

Microloans are business loans given for the short-term to small businesses. These can only be used for activities associated with the business such as paying the staff salary or managing office expenses. Personal loans, on the other hand, are versatile loans which can be used for any financial need.

If you are starting out as a new entrepreneur, choosing between a microloan and personal loan may look confusing. You can easily choose between the two by comparing them on various aspects. Take a look at the features of both to make a wise credit move.

Features Of Micro Loans

A microloan or microfinance loan is collateral-free, i.e. the loans are unsecured. However, some lenders might ask for a collateral. These loans are usually given to borrowers belonging to the low-income group and low capital requirement. The loan is small and repayment tenures are usually short. The rates of interest are higher than personal loans. The funds can be used for business-related purposes only such as updating the business’s technology, buying new furniture and so on. Microloans can’t be used for non-business financing needs.

Features Of Personal Loan

Personal loans are also unsecured. As a borrower, you will not be required to provide any collateral for availing the loan. The loan can be bigger in this case. Unlike microloans, there are no bindings in terms of the end-use of the loan amount. The borrower must meet the eligibility criteria of the lender. Being an unsecured loan, the rates of interest are usually high compared to those on secured loans such as loan against asset. Do note the rate applicable to your loan will depend on your credit score and history. A credit score of 750 or more will help you get loans on low interest rates.

How The Two Compare

Microloans are customized for budding entrepreneurs. They are meant to help them get capital for setting up offices, availing machinery etc. There are also various government schemes and benefits for microloan borrowers that may help you. You can also consider a microloan if you are already servicing a personal loan. A personal loan can come to rescue of those entrepreneurs who are just starting off their business and want to get bigger financing. A personal loan is also a popular choice for new businesses as it requires limited documentation and is convenient to avail.

For a prospective entrepreneur, both personal loan and a microloan can be useful for getting their businesses up and running. Choose one after a careful evaluation of your loan needs, eligibility, repayment tenure, interest rate and prepayment charges., India’s leading online marketplace for loans and credit cards. Need help in calculating your EMI? Use BankBazaar’s easy Personal Loan EMI calculator.