There are numerous financing options available to grow one’s business in UAE, the most popular ones being credit cards and loans but amidst personal loan and business loan, which one can be utilized better? Well, two of the best and most used options for work/ business expansion are business loans and personal loans. If you are struggling to figure out which one of the two might be the most suitable for you, read further…
Read More:- A Beginner’s Guide To Personal Loans in UAE
What can you use a Personal Loan for?
- Personal loans can typically be used for anything.
- Even though lenders in UAE may ask the reason for your application, in most cases, borrowers don’t agree to spend your loan funds on anything specific when taking out a personal loan.
- Some lenders do have restrictions on what their personal loans can be used for, so make sure to read the fine print before applying for a loan.
- Most personal loans can also be used to pay off existing debt.
- Some lenders will restrict you from using personal loans for college tuition and expenses.
What can you use a Business Loan for?
- Business loans may come with more restrictions in regards to what they can be used for, such as the condition that you use the funds for business-related purchases.
- Business purchases in UAE can include updating technology and equipment, purchasing new inventory, paying for rent on a commercial space, hiring new employees, marketing your business, and even covering your everyday business expenses.
- In the end, your business loan should be used for purchases that will generate additional revenue — ideally, enough to offset the cost of interest.
- Some lenders will also allow you to use business loans to refinance or pay off existing debt.
Read More:- A Beginner’s Guide to Mortgages in UAE
What are the advantages of Personal Loans?
Personal loans are often preferred by many borrowers because of an easier overall process. Some of its major advantages are as follows:
Easier approval –
You might have an easier time getting approved for a personal loan, especially if you haven’t been in business for very long.
No collateral required –
The best personal loans are unsecured, meaning you don’t have to put up any collateral to withdraw a loan. On the other hand, many business loans do require you to put up assets in order to secure the loan, especially those with favorable interest rates.
Quicker process –
Personal loans tend to require far less paperwork and documentation, so the approval process is shorter and you get your funds more quickly.
Read More:- How To Check Your Personal Loan Status In UAE?
What are the advantages of Business Loans?
Even though you need excellent credit to qualify for a small business loan, once it gets approved, you can be subject to numerous advantages. Here are some of them:
Larger loan amounts –
If you need a larger loan, you’ll want to consider business loans. Personal loans rarely exceed $50,000, and even that amount can be difficult to qualify for.
Separate finances –
It’s crucial to separate your personal and business finances, and taking out a business loan helps you do this. Not only will this save you a lot of time come tax season, but it could also save you a lot of money in the form of tax deductions.
Lower interest rates –
If you qualify for the best business loans, you’ll probably get a lower interest rate than you would on a personal loan. The interest rates for business loans from traditional lenders range from 2% to 13%, while personal loan interest rates range from 6% to 36%.
Limited liability –
Depending on your legal structure and the type of business loan you take out, your liability may be more limited than it would with a personal loan in case of default or inability to pay.
How to choose which is right for you – a Personal Loan or Business Loan?
Deciding between personal and small business loans and choosing which lenders to borrow from comes down to your business history, your credit, and your business goals. If you need to borrow a lot of money, a business loan will likely be a better option, as lending limits are significantly higher on a business loan vs personal loan. However, If you need money quickly, some personal loan lenders can offer funding within one business day, while you may have to wait for weeks or months for some business loans.
Though one might think a business loan is the most appropriate choice when you need financing for your business, personal loans remain a popular and viable option for this purpose. As with any business decision, there are pros and cons to both methods. Before you dive in, it’s important to weigh your business and personal needs and examine the potential outcomes and repercussions. We hope that this article brought you one step closer to your decision of choosing between a personal loan and a business loan.