Using a Personal Loan to Pilot a Side-Business: When It Makes Sense — and How to Protect Future Business-Loan Eligibility

Rohan dreams of turning his passion for handmade furniture into a side business. He is considering taking a personal loan to buy tools and start production. Applying for a personal loan online can be completed in just a few clicks, making it convenient for aspiring entrepreneurs.
But is risking his credit score worth it? Will this help or hurt his chances when applying for a future business loan? Rohan isn’t alone! Many entrepreneurs face this dilemma, but now have access to personal loan online options that streamline the process.
In this blog, we will walk you through the nuances of a personal loan for a side business and how to future-proof your loan eligibility. The personal loan application process can be started by filling out a simple loan application form online, often resulting in instant approval for eligible applicants.
 

When Does Using a Personal Loan Make Sense?

You may think that starting a side business does not necessarily need a personal loan because there are financial alternatives available in the market. However, with the availability of instant personal loan online options, you can quickly access funds for various needs, making it easier to manage urgent requirements. Here we have listed the common scenarios where an instant personal loan helps!

When the Business Opportunity is Time-Sensitive

Suppose you identify a short-term opportunity that requires immediate capital. In such cases, personal loans can be a quick fix. Once loan approval is granted, the funds can be disbursed to your bank account instantly, enabling you to seize business opportunities without delay.

When Traditional Funding is Hard to Access

If your credit profile isn’t yet strong enough for a business loan, or if you lack collateral, an instant loan is a viable alternative. A personal loan is an unsecured loan, meaning you do not need to provide collateral, and the application process typically requires minimal documentation.

When the Expected Return Justifies the Personal Loan Interest Rates

Calculate the potential profit margin. For example, you want to take a loan amount of ₹50,000 and plan to invest the entire amount into products that could generate ₹1,20,000 in revenue. The personal loan interest rate is 19% annually and the loan tenure is 2 years. This would cost around ₹60,000-₹62,000, and the net profit still looks attractive.
You can use a personal loan EMI calculator to estimate your monthly payments based on the loan amount, interest rates, and loan tenure.

As a Bridge Finance

Suppose you are in the process of establishing a formal business entity and awaiting approval for a business loan. In the meantime, you can keep your operations running smoothly with the help of a personal loan.
If you already have an existing loan, you can apply for a top-up to get the required loan amount, and choose a repayment tenure that aligns with your business cash flow.

How to Protect Your Future Personal Loan Eligibility

Since Rahul decided to go ahead with a personal loan to kickstart his side hustle, here’s what he did to safeguard his creditworthiness - Maintaining personal loan eligibility for future borrowing depends on factors like repayment capacity, repayment history, and meeting personal loan eligibility criteria.

1. Maintained a Healthy Debt-to-Income Ratio (DTI)

DTI is calculated by dividing the entire monthly loan commitments by the gross monthly income. A high DTI (usually over 40–50%) indicates excessive leverage and makes you less eligible for further loans

Pro Tip - When taking an instant personal loan, ensure that your monthly instalments are manageable and do not inflate your DTI. Consider consolidating existing debts until your cash flow stabilises.

2. Planned Future Borrowing Strategically

If you are planning to seek a larger business loan, avoid taking on high-interest or short-term debt that could impair your debt service coverage ratio (DSCR). Instead, opt for loans with -
•           Favourable terms
•           Longer tenures
•           Lower interest rate
•           Flexible repayment options

3. Optimised Credit Utilisation Ratio (CUR)

A high CUR can negatively affect your credit score. Hence, ensure that you do not get caught up between maxed-out credit cards or increased credit utilisation beyond 30%. Maintain low balances and pay down existing revolving credit to preserve a healthy credit profile.

Time to Upscale Your Side Business with a Personal Loan

Prior to applying for a personal loan in India, determine the precise amount required to launch your side business. You can apply for personal loan through a simple online personal loan application process, which typically requires submitting a personal loan application and relevant loan documents. The personal loan application process is straightforward and can be completed online, with many lenders offering pre approved offers for eligible applicants. Banks and NBFCs offer a range of personal loan products, including bank personal loan options with varying maximum loan amounts and affordable interest rates. The maximum loan amount you can apply for depends on your eligibility, which can be checked using a personal loan eligibility calculator. This covers one-time costs such as setting up a workspace and marketing. Do not forget to factor in continuing costs. For the first several months, these could include rent, utility expenditures, and more.
It is important to submit the correct personal loan documents to avoid having your personal loan application rejected. Once approved, the loan amount is disbursed directly to your bank account, often instantly. Personal loans can be used for a variety of purposes, including home renovation, medical emergencies, paying medical bills, or as an emergency loan for unexpected expenses. Personal loans are typically unsecured, and a processing fee, loan processing charges, or personal loan processing fee may apply, but some lenders offer zero or discounted processing fees. Use a personal loan EMI calculator to estimate your monthly payments and plan your finances. Personal loan interest rates and the outstanding principal will affect your total repayment amount, and repaying your outstanding loan early can save on interest. Note that personal loans do not offer tax benefits, but they can help you achieve financial freedom by meeting urgent financial needs.
The personal loan work process involves eligibility assessment, document submission, approval, and disbursal. The personal loan interest rate depends on factors like credit score, income, and repayment history. If you need a required loan amount beyond your current outstanding loan, you may also apply for a top-up on an existing personal loan.
Having a contingency fund for unforeseen expenses is also a good idea. And always make sure to calculate realistically.
Planning to get a personal loan for your side business? Apply for Hero FinCorp’s personal loan to get started with your side-hustle today!

Frequently Asked Questions

I need a ₹50,000 loan urgently to start a side business. How do I get it?

You can get a loan of ₹50,000 using the Hero FinCorp personal loan app. It is a fully digital and paperless process. The process to apply for a personal loan is simple and can be completed online. You can apply for a personal loan online and receive an instant personal loan online with minimal documentation. However, you must fulfil the eligibility criteria.

What is the best loan for a small business?

Although the ideal choice depends on your specific financial needs, the best loan for a small business depends on the loan and interest rate offered by the lender. You can obtain a personal loan at an interest rate starting from 19% per annum.

How can I improve my credit score?

You can have a better credit score by paying your bills on time and including a mix of secured and personal loans in your portfolio.