Running a business isn’t just about selling products or services—it also means making smart financial decisions. One common challenge for entrepreneurs is whether to choose a personal loan or a business loan to fund their needs. Both options provide access to capital, but they differ in terms of cost, eligibility, taxation, and long-term suitability.

In this blog, we’ll break down the key differences between personal loans and business loans, compare their benefits and limitations, and help you decide which option is the right fit for your business goals.

Use Cases: Matching Loans to Your Needs

Below are some examples and use cases where personal loans and business loans suit perfectly:

Personal Loan Use Cases

• Meeting small, immediate business costs such as inventory acquisition or emergency maintenance.
• Testing new business concepts or short-term projects when you do not have an asset to pledge as collateral.
• In cases where the credit history or business financials are not sufficient to secure a business loan.
• Filling in the cash flow during sluggish business periods.

Business Loan Use Cases

• Funding long-term growth, like the opening of new stores or the acquisition of equipment.
• Making capital investments in large-scale capital expenditures or technology upgrades.
• Repaying current business debts on more favourable terms.
• Enhancing business credit history to borrow and expand in future.
• Financing working capital to ensure daily running.

Costs: Overview of Interest Rates and Fees

When deciding between a personal loan and a business loan, consider this cost structure:

Aspect	Business Loan	Personal Loan
Interest Rate	Lower for established firms	Higher due to no collateral
Processing Fee	Up to 4% of the loan amount	Up to 4% of the loan amount
Loan Amount	Higher	Lower
Tenure	Longer	Shorter
Collateral Requirement	Sometimes collateral is required, sometimes not	No collateral required

Tax Benefits of PL vs BL for Business: Save on Income Tax

Tax Benefit on Personal Loan

Section 36(1)(iii) of the Income Tax Act states that in case a personal loan is utilised for business, the interest amount of the loan can be deducted against the taxable business income. This saves you on your total tax. The principal repayment is, however, not deductible.

Tax Benefits on Business Loan

• You can deduct the interest you pay on a business loan as a business expense under Section 36(1)(iii) of the Income Tax Act.
• To deduct interest, the loan should be used for purposes like buying machinery, maintaining working capital, or expanding your business.
• The principal amount is not deductible; only the interest amount is deductible.

How Fast Can You Get PL vs BL for Business?

• Personal Loan: Approval can be within a few minutes. These are perfect if you need funds for rent or inventory for an upcoming festival season.
• Business Loan: Approval can take some days, especially in the case of secured business loans. However, DMI Finance provides unsecured business loans of up to ₹25 lakhs, and you can get an approval within a few minutes. Click here to apply.

How to Apply for a Personal Loan or Business Loan

Here is the step-by-step process:

1. Download the DMI Finance app from the Play Store or App Store.
2. Open the DMI Finance app and log in using your registered mobile number.
3. Tap on “Apply Personal Loan” or “Apply Business Loan” to begin your application journey.
4. Enter personal details, monthly income, and details of your business.
5. Enter your bank account details to allow DMI Finance to verify your income details securely.
6. Select the loan amount you need and pick a repayment tenure that suits you.
7. Complete the e-KYC process by entering your Aadhaar details.
8. Review your address, then provide your bank account details to enable automatic EMI payments (e-Mandate).
9. Read and accept the loan terms and conditions, and you’re done.

Your application will be submitted for review, and you’ll be notified of approval within a few minutes

How to Choose between a Personal Loan and a Business Loan

Choosing between a personal loan and a business loan depends on your top priority, be it cost, tax benefits or approval speed. Here are the deciding factors you must consider:

Priority	Choose a Personal Loan If	Choose Personal Loan If
Use Case	Expansion, assets (e.g., machinery)	Fast cash, no business proof
Cost Sensitivity	Long-term, lower rates needed	Short-term, okay with higher rates
Tax Benefits	Interest is tax-deductible as a business expense	Interest is tax-deductible as a business expense
Approval Speed	7 – 30 days (document-heavy process)	24 – 72 hours approval & disbursal
Startup Stage	Choose a Secured Business Loan If	Bootstrapping solo

The decision between a personal loan and a business loan should be based on loan amount, interest rate, and the cost of borrowing. It allows you to direct the funds for their intended purpose. While a personal loan is ideal for a smaller loan amount and urgent needs, a business loan is ideal when you require a higher loan amount, expand your business or purchase any machinery.

At DMI Finance, we prioritise your financial needs over eligibility criteria and a complex process. To achieve this, we offer both unsecured business and personal loans. Meet all your business objectives by applying for a personal loan or business loan that meets your business needs.

Frequently Asked Questions (FAQs)

1. Will a business loan help me enhance the cash flow?

Yes, the business loans allow you to not only enhance your business’s cash flow but also allow you to meet other objectives like purchasing machinery or inventory.

2. Do lenders consider business models when approving a business loan?

Yes. Many lenders (banks & NBFCs) analyse business plans, revenue models, and financials before approving loans.

3. Do business loans and personal loans attract prepayment charges?

Yes, but it depends on your lender. Many NBFCs and banks offer partial or full prepayment without penalty, particularly on floating-rate loans. Always examine your loan agreement.

4. Can I get a personal and a business loan at the same time?

Yes, you can get a personal loan and a business loan at the same time. However, it depends on your repayment capacity and credit profile.

5. How fast can I get a personal loan for business needs?

With DMI Finance, you can get a personal loan within 24 to 72 hours of approval.

6. How does the RBI’s repo rate affect PL and BL interest rates?

The RBI repo rate influences the interest rates on both personal and corporate loans. As repo rates climb, floating-rate loans (popular in business financing) become more expensive. Personal loans are typically fixed-rate, meaning they do not fluctuate instantly.

7. Does defaulting on a personal loan used for business damage my business’s credit score?

While it may not directly affect the business rank,  your personal credit score will surely be impacted negatively.

8. Is there any difference in credit score between PL and BL?

A personal loan impacts your personal credit score, reflecting your individual creditworthiness. In contrast, a business loan influences your business rank, which measures the financial health and creditworthiness of your business entity.

9. Are business loans unsecured?

Yes, there are a number of lenders who provide unsecured loans. DMI Finance offers business loans up to ₹25 lakhs.

10. How do I know when not to take out a personal loan for business?

Avoid using a PL for business if you need a high loan amount or a long repayment period, or if your company qualifies for a government-backed BL program, which can be more affordable.