Personal Loan V/S Business Loan: Which is a Better Choice for Your Small Business

In order for a business to grow, it needs funding. This is where Loan comes into the picture. Loans are needed in both personal and business settings, which begs the question- what is the difference between a Personal Loan and a Business Loan? In this blog, we’ll cover the differences between these two loans so you can decide which one is best for your needs.

Personal Loan VS Business Loan

You may want to take a personal loan over a business loan if you want the flexibility to pay back your debt at a shorter time. A business loan, on the other hand, can be an easier way for money from outside your business to come in. The downside is you have to meet certain qualifications to qualify for a loan and these can differ from bank to bank.

What Is a Personal Loan?

A personal loan is a type of loan provided by banks and other lending institutions. Personal loans can be granted to individual consumers – like you or me – for any number of reasons including debt consolidation, buying a car, medical bills, or even helping to pay for college tuition.

A business loan, on the other hand, is granted to help start-up businesses. These loans are often approved without much paperwork and are mostly unsecured which means the borrower doesn’t have to offer collateral as collateral protection against defaulting on his/her loan.

Advantages of a Personal Loan

A business loan is just that: a loan taken out for your business needs. If you want to take the pressure off of your personal finances, a personal loan can help do so since there are no payments necessary from the company itself. When comparing the two, it’s important to remember that a business requires collateral. In exchange for this, there are generally lower interest rates available. The higher risk associated with a business also means that a personal line of credit will have higher interest rates and repayment terms.

When Use for Your Small Business

General purpose of a business loan is to grow or develop. For many businesses this might include expanding the business, purchasing new equipment, investing in retail space, revamping marketing strategies, or increasing research and development. While personal loans are flexible enough to cover all kinds of contingencies, there are also certain things it cannot be used for which hinders the process of obtaining the funds for your business needs.

What Companies Offer Personal Loans

One of the often overlooked considerations when it comes to accessing loans as a small business is whether you will qualify for a loan. The major types of personal loans available to individuals is the bank owned and the non-bank owned. Bank owned loans generally offer lower interest rates and fixed terms for repayment, but come with strict qualification criteria like strong credit and equity in property.
Non-bank owned programs can offer competitive rates and flexible terms, but sometimes require higher down payments or security. There are also opportunities when borrowing from friends or family, but that won’t be helpful if your credit score [or theirs] isn’t good enough for banks to consider lending money.

How to Apply for a Personal Loan

To start, talk to family members or friends who may be able to help. If they aren’t able, look into getting a personal loan through an online lender like LendingClub or Prosper. You can also visit your local bank branch and ask about their lending policies for small business loans.

Who Should Consider a Personal Loan

Personal loans can be a great option for individuals who want to consolidate debts, make a major purchase, or pay off credit cards. The interest rates are generally lower but the loan is in your name and an individual won’t need a long credit history to qualify. Business owners who borrow a personal loan will need a personal guarantee from an owner or member of the company with no credit problem in order to borrow money. Business owners may also have less hurdle when seeking financing from equipment or cash advance lenders because they don’t need collateral that often.


The personal loan has a higher priority than the business loan and the interest is low. Establishing personal credit is important because you can’t borrow money from someone if they don’t know who you are. The gross profit of the company must turn a profit before a business owner can borrow money from a lender.

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