Small Business Loans vs. Personal Loans

Most small business owners who are in need of capital, look at the two most common funding options  – Small Business Loan vs. Personal Loan. Since both types of loans are designed for different purposes, it is crucial to weigh your business and personal needs before you grab the right one.

Let’s find out the major difference between these two loans.

What is the difference between a small business loan vs. a personal loan?

Small business loans are designed for business owners who want to fund their businesses while personal loans are used for personal needs. Both loans offer a variety of products, ranging from lines of credit to big long-term loans.

Below are the advantages of each loan type.

Small Business Loan Advantages

A small business loan helps you to keep your personal and business finances apart, which is extremely important when your business grows and tax time comes. Though the interest rate depends on your qualification and creditworthiness, small business loans have low-interest rates comparatively.

When you use business loans with responsibility, it helps you enhance the financial credibility of your firm that also opens doors for other opportunities.

The Uses of Business Loan

A business loan can be used for a myriad of things like you can finance inventory, operational expenses, infrastructure development, etc. It is worth mentioning here that, there are several types of business loans and some are meant for a specific use. For instance, equipment loans are designed for financing equipment and so on.

Personal Loan Advantages

Relatively, personal loans are easier to get because lenders will look at your personal credit score before making a decision of loan approval.

On the other hand, in a business loan, the process is a little longer as lenders examine your business credit, personal credit, financial statements, and your business plan. You can take the help of a financial firm to minimize this process.

Another advantage of personal loan is, it is usually unsecured which means you don’t need to put up collateral to obtain the loan.

The Uses of Personal Loan

A personal loan is a lump sum amount that you can use for any purpose you want. These loans are just like business loans but for personal things. Usually, people use personal loans for things like home renovation, medical expenses, car payments, etc.

Can I use a personal loan for a business loan or vice versa?

Technically, it is possible. Although the way you obtain funds in small business loans vs. personal loans is based on different criteria, money is money you can do what you want to do with it.

However, using personal loans as a business loan can be risky. For example, if for any reason, you fail to pay back the principal on your loan, the lender may seize your personal valuables. So, make the decision carefully.

Final Words

We would say which loan you should choose depends on your requirements because it does not make sense to get a personal loan to finance an equipment purchase. We hope the article helps you choose the right loan as per your needs.

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Small Business Loans vs Line of Credit

Money is the most essential need for any business. If a business doesn’t have sufficient liquidity it won’t run smoothly. Every business now and then needs financial assistance. Luckily, to achieve the financial goals, there are two options available to choose from- A line of credit and a small business loan.

Both of the financial options share similar features and a few distinctions. There are many people who often get confused between these two. In this post, we will shed some light on the differences between these two.

So, let’s get started…

Small Business Loans vs line of credit

Small Business Loan

As the name suggests, a small business loan is a type of loan tailored to meet the needs of the small/medium sized business. In this form of a loan, a fixed amount of money is offered by financial institutions to the borrower. The loan amount will be paid back over time with a monthly debt. Getting a small business loan is hard, but there are several lenders and companies that approve it easily.

Helps in Expansion

Whether the company is new or old, a common problem encountered by business owners is to understand their expansion needs that would lead to higher revenue. A small business loan addresses this issue and gives instant cash that helps them buying new equipment or moving to a new facility possible. In short, this type of loan is also useful to address the needs of business expansions.

Address financial obligations

For many small enterprises, managing cash flow is difficult. It presents its own problems to the businesses. Although your business may perform strongly every month, the payments to vendors, tax bills, etc fall close together and create a shortage of cash. A small business loan, you can avoid such type of crunch and other obligations. This loan allows you to address these essential and instant needs for payments, making it manageable.

Improve performance

Small business loans also allow your business to address the price tags associated with buying expensive equipment, making improvements, etc. It gives a customer-facing area of your facility a decent upgrade, without making you concerned regarding the extra expense.

Line of Credit

This type of financial aid is more widely used than loans. It is useful for businesses or businessmen who have a credit card by their name. The line of credit is different from Line of Credit as it revolves around the nature of credit. While a loan only provides a single defined amount of money, Line of Credit can replenish the credit limit through your company’s payment.

Lines of Credit can be unsecured or secured. They are often revolving, which means you can tap into them repeatedly. Let’s say if you have a line of credit for $50,000 and you take out $25,000, you have still access to the remaining $25,000. It is as same as carrying a credit card with a specific limit. Once it is paid, you can buy more items from it.

Wrapping The Post

In the business world, both small business loans and lines of credit have their own importance. You can choose the one that caters to your business needs. If you are seeking any information about these loans, get in touch with Fundwise Capital today. We can help you acquire the best loans according to your business requirements.

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Why Get a Small Business Loan?

Whether you own a small company or on the threshold of starting a new venture, you need a certain amount of money. The financial assistance that a small business owner takes from a lender or bank is known as small business loans.

Basically, these types of loans are the financial agreements between the lenders and the borrowers in which borrowers agree to pay the borrowed amount back with interest within a decided time frame.  

However, the size of the loan will vary from company to company and lender to lender. There are a few companies that are willing to pay more amount than others.  If you are wondering why you need a small business loan, then keep reading this post till the end…

Why Get a Small Business loan?

You have probably heard the old age saying – Make Money from money! It is true. If you want your business to climb the ladder of success, you have to invest in its growth expenses. For instance property, equipment and advertising. Here are a few reasons you need a small business loan:

  • Advertising & Promotion- These are a necessary investment that helps to build awareness of your brand and drive sales.
  • Bill payment/supplier payment- A small business loan helps to afford your bills and payment.
  • Cash flow- The loan helps a business owner at the time when they need some extra money to get through dry-spells.
  • Rent- Profits and revenue are unpredictable in business. A flexible small business loan can help you to cover the expense of loan in an off-season period and in a downturn.
  • Equipment- A loan can help you buy expensive equipment that is needed for productivity.
  • Hiring- If your budget is tight and you need to hire an extra employee, a small business loan is a right choice to provide enough funding.
  • Expansion and more- A small business loan can help in business expansion, growth and development.

Is small business loans tax deductible?

Short answer: Yes. The interest in the small business loan is tax deductible. As when you are using it for business purposes, it considers for a business expense. Because the interest deduction is from the taxes, it lowers the tax burden and makes loan repayment as little as possible. However, in order to eligible for small business tax deduction, you will need to meet certain criteria decided by the IRS.

Are small business loans fixed or variable?

For start-ups, most people would agree that fixed loans make sense. Variable rates come with several benefits like market influence and lower interest rates. But, these loans can also skyrocket as well, making it appears more like a gamble.

In short, small business loans are categorized as fixed. Banks may charge their interest rates but as these loans are backed by real estate so the interest rates are on the lower end.

Where to apply for a small business loan?

Applying small business loan needs precise consideration and knowledge. It should be something on first come first serve basis. If you are looking for a reliable partner that offers you a small business loan without any hidden charges, then Fundwise Capital can help you.

Whether you are an entrepreneur, small business owner or start-up, we help you secure the best capital along with educating you to master the growth and success of your future business. Apply in just 30 seconds and let us help you to obtain loan for your small business.

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What are Small Business Loan Rates?

Running a small business successfully with limited funding sources can be challenging. However, a small business loan is a rescuer here. This type of loan can be used for a variety of purposes, ranging from infrastructure development to inventory purchase to operational expenses.

A small business loan is highly advantageous for businesses falling short of capital as it is flexible and easy to avail without much documentation and time.

Let’s have a glance at small business loan rates.

Small Business Loan Rates

The loan rate varies depending on various factors. For instance, the type of small business loan you’re applying for, your qualification, and the lender you choose.

Conventional lenders such as credit unions, banks can have an annual percentage from 4% to 13% whereas online loans can charge percentage rates from 7% to over 71%. Check out average annual interest rate (AIR) of some major lenders.

Above table shows that online lenders charge higher annual interest rates than traditional lenders and Small Business Administration (SBA).

The kind of loan you choose also affect your interest rate to a large extent. Most banks offer business lines of credit and term loans. However, some alternative lenders offer merchant cash advances, accounts receivable financing or invoice factoring. Generally, such products carry higher interest rates than lines of credit and regular terms.

There are a variety of factors that may affect your small business loan interest rate. Therefore, it is advisable to approach a reputable financial firm that can help you secure the right funding according to your business needs.

Payment & terms on small business loans

Different financing firms have different payment options and terms. Below are the terms of a few important small business loans.

Business Lines of Credit:

Depending on your history, requirements, and trustworthiness, you can qualify for this loan. The amount of this loan starts from $10,000 to $500,000. The loan term can range from 6 months to 5 years with an interest rate of 7% to 25%. Your business must have completed 6 months and earning of $50,00 annual revenue to obtain this loan.

Bank Loans:

Although banks lend limited dollars to small businesses, you can expect to get as little as $50,000. The interest rate will vary depending on the size, length and credit score of a borrower. In some cases, you may have to put up security for secure financing.

SBA Loans:

Small Business Administration lends as little as $10,000. The loan can last from 3 to 25 years and interest rates are determined by the length and size of the loan.

Are small business loans based on personal credit?

Not entirely but yes to a large extent. Most lenders will see your personal credit score for loan application as they want to see how you manage debt. Before you apply for a small business loan, you should focus on building personal as well as business credit score. A personal credit score ranges from 300 to 850. Remember, the higher is better. Your target should achieve at least 600.

Is a small business loan secured or unsecured?

Every small business loan is unsecured that you can obtain without any collateral requirement If you’re ready to provide blanket UCC lien or personal guarantee. Look for the lender that offers loan without collateral. As long as you’re a responsible borrower, you don’t need to be worried about anything even if your loan is protected by colletral.

Is a small business loan installment or revolving?

A small business loan works similar to other loans in its most basic form, however, it can also take the form of revolving lines of credit. Since you can apply it for different purposes, its terms and payment options will depend on your specific purpose. For instance, SBA offers fixed as well as revolving lines of credit up to $5 million.

There are a lot of factors that may affect small business loan rates. Hopefully, the article makes you aware of some of those factors. Always choose a reputable financial service company that can get you a small business loan at easy rates.

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Small Business Loan vs. Mortgage

Getting a small business loan or mortgage loan is one of the challenges you will experience as you start your business. Although, it may seem daunting, yet with the right information qualifying for any of these types of loan is not a hard nut to crack.

When it comes to small business loans, there are heaps of options out there. Not only there are many small business loans available, but there are also other finance options available and one of which is Mortgage.

The debate to choose between these two is not new. For some, a small business loan is a right choice while for others, mortgage makes sense. However, choosing the right one depends on several factors.

Here is what you need to know when choosing between small business loan vs. mortgage.

Brief Overview

Small business loans help business owners to inject a bit of capital into their prevailing small business. These long-term, low-interest loans help business owners to start their business, expand it, and to use the capital for other business purposes.

On the other hand, a mortgage loan is approved only when the amount borrowed is either equal or less than the property value. It means such a loan is only approved if the value of property covers the loan amount that is borrowed.

Difference between Small Business Loan vs Mortgage

Small Business Loan

The purpose of the small business loan is to buy equipment for business, pay rent of the commercial property, pay tax, bills, etc. In short, these loans are designed to accomplish the needs of small businesses. These are unsecured loans that do not need any sort of commercial property to get approved.

Mortgage Loan

This loan is taken for the purpose of refinancing, redeveloping a commercial property and for acquiring. It is approved only if the amount borrowed is equal or less than the worth of the property.

Types of Loans

Features of Small Business Loans

The various types of small business loans available are:

  • Secured and unsecured loans
  • The short and long-term loans
  • The Line of credit loans

Features of Mortgage Loans

These types of loans are:

  • A fixed-rate mortgage
  • Adjustable rate mortgage
  • Reverse mortgage

Rate of Interest

Mortgage loan

  • The rate of interest of Mortgage loan is lesser than the small business loan.
  • The mortgage rates assume some aspects about you: like a good credit score. A score of 740 or above is considered ‘very good’.

Small Business Loan

  • The rate of interest for a small business loan has a higher risk.
  • The borrowers are needed to have high-credit ratings to apply for these loans.
  • The maximum rate of interests set by the Small Business Administration ranges from 7.75%-10.25%, depending on the amount borrowed and the loan size.

Final Thoughts

There are a number of factors that are needed to be considered before settling on a particular finance option. The borrowers must understand their needs and weigh the advantage of each financial option to choose the right option according to their business needs.

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