If you are starting out your dream venture or want to expand your business further, you are probably considering taking a loan. While a business loan would appear to be the best option for you, taking a personal loan could also help you meet your funds requirement. Personal loans are unsecured loans given by banks at a certain interest rate and a fixed tenure. You could use it for any purpose like having that fairy tale wedding, following it with an exotic honeymoon, travelling the world or any other expense. But should you use it for building your business? Let us find out.
Types of Loans
While a personal loan stands on its own, there are different types of business loans available to suit your needs. The types include business term loan, property financing, SME micro loan, trade financing, SME working capital loan, and equipment financing.
The Application Process
For a personal loan, lenders would normally ask for a proof of your identity and income. Once you provide all the required documents, lenders usually approve your personal loan the same day. On the other hand, when it comes to business loans, the application process could take a little longer since you might have to submit your business plan, along with your financial reports.
Need for Collateral
Since personal loans are unsecured, you do not need to provide a collateral for obtaining the money. However, for a business loan, you might require a collateral or a guarantor, especially if you are starting out a new business.
The personal loan interest rates can vary widely from bank to bank. Apart from the tenure you choose, the rate is determined on the basis of various factors such as your income, your credit score, age, among other things. Some of the Singaporean lenders offer personal loan with Effective Interest Rate starting from around 7% p.a. Business loan interest rates also vary from bank to bank. It also depends on the type of business loan you are applying for.
Most lenders in Singapore charge a one-time processing fee for the loan. This fee is applicable for both personal loans and business loans.
Impact on Your Credit Score
When you take a personal loan, your credit score could fall if you fail to make timely payments. On the contrary, when you pay on time, your score could go up. When you apply for a business loan, it will be in the name of the company and thus, your individual credit score will not be affected.
Things to Consider Before Opting for a Personal Loan
Personal loans may or may not have prepayment penalties if you try to pay off your loan earlier.
- Read the terms and conditions of the loan carefully before applying.
- Remember that the EIR (Effective Interest Rate) will be higher than the applied interest rates mentioned.
Some Banks in Singapore Offering a Personal Loan
Things to Consider Before Opting for a Business Loan
- If you have a business partner/s, you must have a talk before you take up any loan. The consent of your partner/s is vital to any big decision.
- Examine your business plan to see how long it will take to pay the amount back.
- Check the waiting time before the approval comes in. If the approval comes in after a crucial date (for example, payment for a consignment), then you could approach another bank.
Some Banks in Singapore Offering a Business Loan
While both personal loans and business loans have its pros and cons, you must examine your options before applying for any loan.