Business

Difference Between Gold Loan and Business Loan

An individual can avail of both a gold loan and a business loan. Comparing these two loans, the gold loan interest rate is much less than the business loans simply because the gold loan is a secured loan against gold pledged as security. On the other hand, a business loan is an unsecured loan that is sanctioned based on strict eligibility conditions. Let us understand the difference between the two and what benefits a gold loan brings for lenders over a business loan.

What is a Business Loan?

A business loan is a lending agreement between a business and a lending institution in the organised market. These loans are particularly designed for business purposes. It also involves the debt creation for a tenure that is to be repaid with applied interest. When an individual starts a new business, there is the need for capital to fund the initial expenses of the business. A business loan can meet such business requirements. The business needs to pay it back to the lending institution at an agreed-upon interest rate within the loan tenure. 

What is a Gold Loan?

A gold loan is a secured loan with a lending institution where an individual or a business needs to pledge their gold valuables. The lender provides a certain percentage of the gold value as the loan amount, as high as 75% with renowned NBFCs. This percentage is based on the gold’s current market value and gold purity. The gold to be pledged should be fine in the range of 18-24 carats. 

End-use of the loan: A business loan specifically fulfils the financial requirements in your business, like purchasing machinery, working capital requirements, stock purchase, etc. On the other hand, the gold loan can be utilised for numerous purposes, including your various business requirements. Whether it is a wedding, a vehicle purchase, higher studies, or travel plans, a gold loan can finance any purpose. 

  • End-use of the loan: A business loan specifically fulfils the financial requirements in your business, like purchasing machinery, working capital requirements, stock purchase, etc. On the other hand, the gold loan can be utilised for numerous purposes, including your various business requirements. Whether it is a wedding, a vehicle purchase, higher studies, or travel plans, a gold loan can finance any purpose. 
  • Documentation: A gold loan is easy to process with minimal documentation as compared to a business loan. A gold loan application can be processed with basic documents like KYC documents. A few renowned NBFCs, like Muthoot FinCorp, can offer gold loans without income proof. On the other hand, business loan providers need a hefty documentation set that includes the bank statements, business profit and loss statements, balance sheets, etc. After processing these documents, the lender may approve a business loan application.
  • Repayment Options: Borrowers can repay the gold loans with easy repayment options, like pay interest only. Gold loan borrowers are permitted to pay the interest on a monthly basis instead of regular EMIs. They can pay the principal loan amount at the end of the loan tenure.

The Benefits Of Gold Loan For Business

As mentioned, one can utilise gold loans to meet their business requirements. Here are the key benefits that a business can enjoy with a gold loan at a low-interest rate:

  • Fast approval and disbursal

A business owner facing financial restraints rarely has the time to undergo a lengthy loan approval procedure. Several formalities extend this process in the case of a business loan. Fortunately, gold loans are much easier to avail by the business owners in the hour of need. A few NBFCs can process your loan disbursement within 10 minutes after the successful gold assessment process.

  • Effective finance option for individuals with low credit score

The credit score of a loan applicant is crucial for a financial institution. A higher credit score is more important when it is an unsecured loan application like a business loan. A low credit score due to a low credit utilisation ratio, delayed EMIs, or an error in our credit report may trouble a business owner if they require urgent funds. A gold loan can be an effective solution that does not require a high credit score because the borrowers collateralise their gold valuables. It keeps the lender on a safer side to recover the loan amount if they default.

Thus, one can easily understand the difference between a gold loan and a business loan. Utilise gold loans over a business loan to meet diverse financial requirements on personal and business fronts.

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