What is a salary loan?
A salaried loan is a misnomer. If it has to be defined, it would be a loan given to a person by a financial institution, who is drawing a salary from an employer/company usually known to the bank. It is popularly referred to as Personal Loans. These loans are usually drawn by a salaried person from the bank where his salary is credited, and usually, the interest rate charged by the bank, on these loans is quite high (depending on the credit score of the borrower). Few reasons why a salaried person draws a personal loan are family vacation, unexpected medical emergencies, sudden financial distress, etc.
Interest rate of salary loan
A salaried loan could also include Motor Loans (two-wheeler or four-wheeler loans) and a housing loan. The interest rates on these kinds of loans are usually lesser than the interest rate offered for a personal loan and it depends on the lending rate at which the retail banks take a loan from the central bank. The quantum of loan sanctioned depends on the salary drawn by the person at the time of applying for a loan. For any loan of a large value, it is a practice of the lender to demand co-signers and other forms of security, to ensure that even if the borrower goes bankrupt, the bank can recover the money by seizing of personal asset of the borrower or making the co-signee pay for the remaining amount. By doing so, the lending institution tries to cover its losses in the case be.
What is a business loan?
A business loan, as the name suggests is a loan taken by a borrower for any purpose which deals with business. It could be a loan granted for expansion of business, starting of business, looking for more working capital, etc. These loans are usually very cause-specific and are granted based on the financial history of the business. The usual business loans can be categories as
- Line of credit
- Commercial business loan
- Startup business loan.
- Equipment financing loan
- Vehicle loan for business
- Asset-based loans
- Invoice factoring loans
- Unsecured loans, etc
Business loans tend to a large amount of loans, which are much higher than personal loans, and thus come at risk for the lenders. Thus, the lender will carefully analyze your repayment ability and only sanction the loan, when the lender is confident of the borrower. Usually, business loans can be taken to purchase new equipment, paying salaries, covering rent, opening up a new office unit, etc. These are just a few uses of a business loan, but it can be safely concluded that the purpose of a business loan is to finance a business to grow.
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