Starting or operating a small business in India can be both a challenging and rewarding endeavour, but it requires a significant amount of capital upfront. In such a scenario, most people consider getting a business loan. However, getting a business loan for a business that has not yet started is almost impossible, while availing a business loan for a small business owner can be a little difficult because it may require some collateral or quite extensive documentation. While there are many other ways to secure funding, personal loans have grown in popularity among business owners due to their ease of application and quick approvals.

A personal loan for Small Business is easy to get. First and foremost, it is an unsecured loan that requires no collateral. Second, it necessitates minimal documentation and straightforward eligibility requirements. Third, equated monthly instalments make it much easier to manage and repay a personal loan. Most importantly, personal loans have no predetermined usage terms, making them extremely flexible and simple to use for any legitimate purpose, including business. In this article, we will comprehend and learn about how to use personal loans to fund small businesses in India and make the most of them to flourish. 

How to Make a Personal Loan More Profitable for Your Small Business 

According to a survey, approximately 67% of people rely on personal loans to fund their needs, which could include using them for business purposes. Because a personal loan is extremely flexible, there is no way to determine the exact percentage of individuals who use personal loans solely for business operations. However, in recent years, there has been a growing trend among small business owners in India to use personal loans to fund their ventures. Whether it’s for expanding operations, purchasing inventory, or managing day-to-day expenses, personal loans offer a practical solution. Understanding how to effectively use these loans can be a game-changer for your business.

Assessing Your Small Business Needs Before Taking a Personal Loan

Before applying for a personal loan, you should first determine and calculate your actual business requirements. Common reasons for needing a personal loan include purchasing inventory, expanding the business, covering unexpected business expenses or operating the working capital. It is very important to access and find out how much you exactly need to borrow to kickstart your business endeavour. This will help you effectively align the loan amount with your financial goals. 

Once you identify your business needs, carefully evaluate your financial standings. Examine your current liabilities, financial commitments, and credit score. A strong credit history will make it very easy for you to secure a loan at a favourable term. Knowing your financial situation will help you determine the appropriate loan amount without borrowing more than you need, which can lead to a debt trap. 

Setting a Clear Business Plan to Secure a Personal Loan for Small Businesses

Regardless of how you finance your business, having a well-thought-out business plan is critical for your company’s success. Furthermore, if you are taking out a personal loan, it is critical to establish clear financial goals. For example, if you are borrowing money to expand your business, set specific goals, such as increasing sales by a certain percentage or opening a new branch. Clear goals not only help with loan management but also serve as a benchmark for measuring loan utilization success.

Evaluating Personal Loan Options for Small Businesses

Not all lenders have created personal loans equally. Shop around before deciding on a lender, whether by visiting banks or going online. When choosing a lender, several factors should be considered. The most significant ones are interest rates, loan terms, eligibility criteria, and processing costs. Higher interest rates can raise the cost of borrowing, whereas longer loan terms can lower monthly payments while increasing total interest paid. Additionally, some lenders charge processing fees, which can add to the cost of the loan. Using online comparison tools can assist you in identifying the best loan offers available in India, ensuring that you receive a loan that meets your requirements at a competitive rate.

In today’s fast-paced world, however, you may find it difficult to devote enough time to visiting various banks and learning about their loan terms, interest rates, eligibility requirements, and so on. In collaboration with several leading NBFCs, Kreditbazar provides a simplified online portal that allows you to process personal loans with several NBFCs without having to worry about your credit score dropping. Our dedicated professionals, with their expertise in the field, will assist you in obtaining a loan from the NBFC where your profile meets the eligibility requirements, saving you time and money over the time-consuming traditional process of visiting various banks and finding the right lender that matches your profile. 

Planning Repayments for Your Personal Loan for Small Businesses

Creating an effective repayment strategy is critical for maintaining financial stability. This includes budgeting, prioritizing expenses, and possibly restructuring existing debts to manage the additional loan repayment effectively. Before signing the loan agreement, ensure that you understand the Equated Monthly Installments (EMI), loan tenure, and interest rates. Understanding other fees and penalties, such as preclosure charges, late penalties, processing fees, and so on, is critical for determining the proper loan cost and effectively planning loan repayment. 

One way to ensure timely repayments is to set up automated payments. This helps you avoid missed due dates, which can lead to late fees and negatively impact your credit score. Automation also provides peace of mind, allowing you to focus on running your business without worrying about manual payments.

Preparing for the Personal Loan Application for Small Businesses

A successful loan application requires the right preparation. Understand what documents are required and gather all of them for a smooth paperwork process. The documents that are required are:

For Salaried: 

• Aadhaar Card 
• PAN Card 
• Residence proof 
• Salary slips 
• Form 16 (or ITR- Income Tax Return) 
• Bank Statement

For Self-Employed: 

• Aadhaar Card 
• PAN Card 
• Residence proof 
• Bank Statement
• ITR- Income Tax Return
• Balance sheet 
• Income Computation 

Please keep in mind that the lender you choose may request additional documents based on their policies and regulations, as well as your profile. Ask about the required documents before applying for a loan to ensure a smooth process.

How to Apply for a Personal Loan for Small Businesses

Once you have decided on a lender and prepared the necessary documents, it is now time to apply for a personal loan. Understanding the application process can help you avoid common mistakes and increase your chances of success.

The loan application process involves filling out the application form, submitting your documents, and waiting for the lender to review your application. Many lenders offer both online and offline application options. Offline applications may require you to physically visit the lender’s office, whereas online applications are typically faster and more convenient, allowing you to apply from the comfort of your own home. 

Make sure the information you submit is accurate and complete to improve your chances of being approved. Before submitting your application, make sure it is free of errors and omissions. Providing false or incomplete information can lead to rejection or delays. Additionally, it’s important to avoid applying for multiple loans simultaneously, as this can negatively impact your credit score.

Using a Personal Loan Effectively in Your Small Business

Once the loan has been approved and disbursed, the next step is to use the loan funds according to the plan. Do not use the funds for purposes other than those for which they were borrowed. If necessary, create a well-planned budget for where and how to spend the money to help you avoid overspending and ensure that the loan amount is used efficiently. 

Regularly reviewing your expenses can help you stay on track and make adjustments if needed. Also, it is important to monitor the impact of the loan on your business. To assess the success of your investments, keep track of key performance indicators such as sales growth, profitability, and new customers. If the results are not meeting your expectations, consider changing your strategies to get better results.

Contingency Planning for Personal Loan Repayments in Small Businesses

An entrepreneurial endeavour may not always go exactly as expected. Having a backup plan is a good idea in case something does not work out as planned. Repayment of a personal loan is required regardless of whether your business experiences difficulties or does not meet its goals.

Make sure you have emergency funds, savings, or other sources of income in case things get hard and you need to stop making loan payments.

Success Stories: How Indian SMEs Used Personal Loans for Business Growth

Let us look at how a homemaker from Bihar is now significantly contributing to her family.

Manisha’s family was entirely dependent on her husband’s income, which was insufficient to meet their needs. However, she was determined to contribute to the family’s income and considered starting her own. She used to sew the clothes, but that was not quite enough. She wanted to do more. 

She took her first personal loan and started her grocery shop. She was able to make a profit, so she decided to expand the business by taking the next shop and making it a proper and bigger one. She paid off the loan and, after some time, applied for another personal loan, this time for a slightly higher amount.

Her business has flourished, and she has opened additional grocery stores for her children. Manisha has become a successful entrepreneur. 

Conclusion

Personal loans can be a valuable resource and a strategic move for small business owners in India if approached with the proper knowledge and planning. You may use personal loans to accelerate business growth and reach your financial objectives by thoroughly analyzing your company’s needs, weighing your loan options, and managing the loan well.

You can avoid all of the headaches by relying on Kreditbazar, India’s most trusted DSA. Process your loan with our partnered NBFCs via a streamlined digital portal, making your loan journey simpler, more effective, and faster. Take advantage of Kreditbazar’s in-house industry experts to gain valuable insights and strategies to help your business thrive.

Frequently Asked Questions on Personal Loans for Small Business 

Q1. Can we take a personal loan for business?
Ans1. Yes, you can take a personal loan for business purposes. Personal loans offer flexibility and can be used to meet business needs like working capital, equipment purchase, or expansion. However, personal loans typically have higher interest rates compared to business loans.

Q2. What is the easiest small business loan to get?
Ans2. The easiest small business loan to get in India is a Mudra loan under the Pradhan Mantri Mudra Yojana (PMMY). It requires minimal documentation and offers loans up to ₹10 lakh for micro and small enterprises.

Q3. Is there any loan for small businesses?
Ans3. Yes, several loans are available for small businesses in India, including Mudra loans, SIDBI loans, and business loans from banks and NBFCs. These loans cater to the financial needs of MSMEs for expansion, working capital, and asset acquisition.

Q4. What is PM Modi’s 10 lakh loan?
Ans4. The PM Modi ₹10 lakh loan refers to the Mudra loan scheme under the Pradhan Mantri Mudra Yojana (PMMY), which provides loans up to ₹10 lakh for small and micro enterprises in the non-farm sector to promote entrepreneurship.

Q5. What is the monthly EMI for a 1 lakh personal loan?
Ans5. The monthly EMI for a ₹1 lakh personal loan depends on the interest rate and loan tenure. For example, at an interest rate of 12% for a 12-month tenure, the EMI would be approximately ₹8,885.

Q6. Which loan is better for business?
Ans6. Business loans are generally better suited for business purposes than personal loans as they often come with lower interest rates, longer repayment tenures, and higher loan amounts, which are tailored to business needs.

Q7. Can I get a personal loan without ITR?
Ans7. It is difficult to get a personal loan without ITR (Income Tax Return), but some lenders may approve loans based on alternative documentation like salary slips, bank statements, or proof of income from other sources.

Q8. Is a PF statement required for a personal loan?
Ans8. No, a PF (Provident Fund) statement is not typically required for a personal loan. Standard documents required are identity proof, address proof, bank statements, and income proof like salary slips or ITR.

Q9. What are the 3 documents needed for a Personal Loan?
Ans9. The 3 essential documents needed for a personal loan are identity proof (e.g., Aadhaar, PAN), address proof (e.g., utility bills, passport), and income proof (e.g., salary slips, bank statements, or ITR).

Q10. What is the minimum salary for a Personal Loan?
Ans10. The minimum salary required for a personal loan in India generally starts from ₹15,000 to ₹25,000 per month, depending on the lender’s criteria.

Q11. Who is eligible for a Personal Loan?
Ans11. Individuals between the ages of 21 and 60, who are salaried or self-employed, with a stable income, and a good credit score (generally above 700), are eligible for a personal loan in India.

Q12. How to get 10,000 rupees urgently without a salary?
Ans12. To get ₹10,000 urgently without a salary, you can opt for payday loans, personal loans from fintech companies, or avail of credit from mobile apps like MoneyTap or EarlySalary that offer small instant loans.

Q13. Can I get a 5 lakh loan without income proof?
Ans13. It is challenging to get a ₹5 lakh loan without income proof. However, some NBFCs or fintech lenders might offer loans based on your credit score, bank statements, or collateral.

Q14. Can I get a 50000 loan without a salary slip?
Ans14. Yes, you can get a ₹50,000 loan without a salary slip from certain fintech companies or NBFCs by providing alternative income proof like bank statements or collateral.

Q15. Which loan is 50% subsidy?
Ans15. The government offers a 50% subsidy under schemes like the Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation of small-scale industries in India.

Q16. Who is eligible for a Mudra loan?
Ans16. Individuals, small business owners, and MSMEs in the non-farm sector are eligible for Mudra loans. There are three categories: Shishu (up to ₹50,000), Kishor (₹50,000 to ₹5 lakh), and Tarun (₹5 lakh to ₹10 lakh).

Q17. What is the Pradhan Mantri 50000 loan scheme?
Ans17. The Pradhan Mantri ₹50,000 loan scheme refers to the Shishu category of the Mudra Yojana, which provides loans up to ₹50,000 to micro and small enterprises for business growth.

Q18. Which loan is best to start a business?
Ans18. The best loans to start a business in India include Mudra loans, Start-up India loans, and business loans from banks or NBFCs, depending on the size and needs of the business.

Q19. Which loan is best for business?
Ans19. Business loans from banks, Mudra loans, and SIDBI loans are ideal for business purposes, as they offer low interest rates, high loan amounts, and flexible repayment terms.

Q20. What is the minimum loan amount for a business?
Ans20. The minimum loan amount for a business typically starts from ₹50,000, depending on the lender and the type of business loan. Mudra loans, for instance, offer loans starting at ₹50,000.

Q21. Can you put a personal loan into a business?
Ans21. Yes, you can use personal loan funds for business purposes, but this might not be financially optimal due to higher interest rates and limited tax benefits compared to business loans.

Q22. Can I get money to start a business?
Ans22. Yes, you can get funds to start a business through Mudra loans, government schemes, business loans from banks and NBFCs, or start-up funding from investors.

Q23. Is personal credit used for business loans?
Ans23. Yes, personal credit scores may be considered when applying for a business loan, especially for small businesses or start-ups with limited business credit history.

Q24. Can we get the business loan on salary?
Ans24. Salaried individuals can apply for business loans, but they would need to demonstrate a valid business plan and income proof. Lenders may also check credit scores before approval.

Q25. How much loan can I get to start a business?
Ans25. The amount of loan you can get to start a business depends on the lender and your business plan. Mudra loans offer up to ₹10 lakh, while banks and NBFCs provide loans based on the projected turnover.

Q26. What is the disadvantage of a bank loan?
Ans26. One disadvantage of a bank loan is the rigid repayment schedule, which can strain cash flow. Bank loans also often require collateral and extensive documentation.

Q27. Can a person give a loan to a private company?
Ans27. Yes, a person can give a loan to a private company, but it must adhere to the regulations set by the Companies Act, including approval from the company’s board and proper documentation.

Q28. Can we take personal loans for business?
Ans28. Yes, personal loans can be used for business purposes, but they come with higher interest rates compared to business loans, and tax benefits may not apply.

Q29. What is the minimum credit score for a loan?
Ans29. The minimum credit score required for a personal loan in India is usually 650-700. However, a score above 750 increases the chances of approval and offers better loan terms.Q30. What credit score for a business loan?
Ans30. For a business loan, a credit score of 750 and above is considered ideal. Lenders may also look at the credit history of the business and its cash flow.