For anyone looking to borrow money, it’s a good idea to read up on some of the perks of personal loans versus business loans. Though both can be used for gaining the assets you need for your company, picking the right option can be trickier than it seems. There are several differences between the two, and if you don’t know which one could benefit you more in the long run, you might end up costing yourself nearly double your initial loan. Don’t panic. Quick business funding is possible through both outlets, read this before you decide between applying for a business loan or a personal loan.
Why a Personal Loan
Overall, personal loans are a little easier to get approved for. The main criterion – if not the only one, depending on the loan provider – is an evaluation of your credit score. A business loan, though, typically takes into account your personal credit, your business plan, your business credit, and other financial documents associated with your company. Also, many personal loans require less time to get approved for, whereas business loans tend to take longer. Finally, a perk that many people find about a personal loan is that they are generally unsecured; that is to say, you don’t need to post collateral to obtain a loan.
Why a Business Loan
First, keep in mind that you and your business are two separate entities. By applying for a business loan, you will keep your personal and business finances better separated. This is a great asset come tax season. Also, if complications should arise, the business loan will only be for the company, not your personal finances (depending on the type of loan you receive). With a business loan you are able to fund your company, build its financial credibility, and pave the way for future transactions to help your business succeed.
Why Not a Personal Loan
One of the biggest problems with a personal loan compared to a business loan is the fact that most personal loans have lower limits. Your credit line will cap out much sooner on a personal loan and the potential to not get all the funds you need is a real possibility. Additionally, interest rates tend to be higher. Those additional percentage points of APR can really start to build up the interest you accrue, and that is money not contributing to your profits.
If you take out a personal loan for your business, and for some reason it defaults, it is you – and your individual/personal finances – that will feel the hit. If your business fails and you are unable to repay your personal loan, it will leave you with a poor credit score that is difficult to build back up.
Why Not a Business Loan
Often, people say that the downside to a business loan is actually obtaining one. They are more difficult to be accepted for than a personal loan. That doesn’t mean getting a business loan with poor credit is impossible – rather, just the road to travel is bumpier. The process can be long and wearisome if you aren’t applying with the right company. Finding the right lender can require lots of research and rejection along the way before you actually attain funding. Granted, where you are in the course of your business – trying to start up, expand, or just continue operating – will impact how you are evaluated for your loan. There are times that a business loan will require you to include collateral or will make the business owner personally liable for repaying the loan if the business cannot.
Even if you don’t know how to apply for a business loan, that doesn’t mean you should rush out and get a personal one. In many ways, it is a smarter move to search for a lender that offers easy small business loans rather than putting your personal finances at risk. Do your research, and you’ll discover that there are several lenders who will approve fast small business loans even for people with bad credit.