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.
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.