Business Loans vs Personal Loans: Which Is Best for Your Small Business
This article is part of a larger series onBusiness Financing.
Both business loans and personal loans can allow you to get working capital, lines of credit, equipment loans, and other types of funding needed for your small business. The most significant difference between the two types of loans is how lenders determine qualifications.
Business loans are determined by either using business credit and revenues alone or by using business and personal credit and income combined. Lenders require you to be in business for a minimum amount of time, with minimum annual revenue requirements set as well.
Personal loan qualifications are based on personal credit history, debt, and income. This might include income from your business. While personal loans can be used for business expenses, business loans cannot be used for personal expenses.
LightStreamis a great option for a personal loan for your business. With interest rates as low as 4.98% for unsecured loans and 2.49% for secured loans, LightStream provides personal loans at great rates. Check out LightStream’s website for information or to apply.
If you’re looking for a business loan,Fundboxis an excellent choice. You can get a business loan or line of credit of up to $150,000 in less than one business day. Visit Fundbox’s website for more information.
Business Loan vs Personal Loan at a Glance
Terms
|
Personal Loan
|
Business Loan
|
---|---|---|
一个PR Range
|
2.49% to 35% |
9% to 100% |
Maximum Loan Amount
|
$100,000 |
$500,000 |
Repayment
|
Monthly |
Monthly |
Minimum Credit Score
|
600 |
600 |
Speed of Funding
|
Usually within 24 hours |
Usually within 24 hours |
Time in Business Requirement
|
Not considered |
Usually at least six months but varies per lender |
Business Annual Revenue Requirement
|
None |
$100,000 and up |
Personal Guarantee
Required?
|
Yes |
Usually |
Not calculated |
1.25x and higher |
|
Personal
Debt-to-Income (DTI)
maximum
|
43% |
43%, but DSCR will be considered more heavily |
Provider
|
There are slight differences between the loan types. Personal loans generally have lower interest rates and lower maximum loan amounts. Your amount of time in business and annual business revenues aren’t considered, and a DSCR isn’t calculated.
Meanwhile, business loans typically have slightly higher interest rates and a larger maximum loan amount. Most lenders will require a minimum annual revenue and time-in-business requirement. Usually, the minimum time in business is at least six months, but many lenders require you to be in business for at least two years. Your DSCR must be at least 1.25x for most business loans.
Otherwise, the loans are very similar, with monthly repayment terms, funding available within 24 hours, and a personal DTI ratio of less than 43%. A lender might not heavily weigh the DTI on a business loan, considering the DSCR instead. However, the DTI number can be a huge determining factor in approval or denial for a personal loan.
The other thing both types of loans can have in common is a personal guarantee. You’re liable for a personal loan but, in many cases, the same is true with a business loan. If the lender requires a personal guarantee for a business loan, you’ll be personally liable if the business defaults on the loan.
When To Use a Personal Loan
个人贷款基金创业b是一个伟大的方式usiness, especially if you don’t have the business revenue or time-in-business requirements necessary to qualify for a business loan. While a personal loan won’t allow you to build your business credit, it’ll give you the funds needed for your business to continue to grow. As your business grows and revenues increase, you’ll be more likely to qualify for a business loan in the future.
一个personal loan for business funding也给你flexibility to use proceeds on personal expenses in addition to business expenses. This is something you cannot do with a business loan. This could be especially helpful if you’re relying solely on the revenue generated by your business for personal income.
The following types of businesses should consider a personal loan:
- Borrowers with strong personal credit that might qualify for a personal loan rate that’s lower than a business rate
- Startup businesses too new to meet business loan requirements
- Borrowers planning to use some of the funds for personal expenses
- Borrowers looking for an unsecured loan or a smaller loan amount
Personal Loan Pros and Cons
PROS | CONS |
---|---|
Qualifying is easier | Maximum loan amounts are typically lower |
Interest rates are generally lower | Won’t build business credit |
Collateral may not be required | Repayment term may be too short |
How to Apply for a Personal Loan
For a personal loan, you can either reach out to your local bank or find an online provider. Most will require at least your most recent tax returns or proof of income. They’ll pull your personal credit report as well. If you’re purchasing equipment, you’ll need to provide them with information on the secured collateral.
The application process can be completed in minutes, with a decision within 24 hours. Unsecured loans are usually funded within 24 hours. Secured loans might take up to a few days for funding.
If you’re looking for a personal loan for business purposes,LightStreamis a great option. LightStream has interest rates as low as 4.98% for unsecured loans and 2.49% for secured loans. Check out LightStream’s website for information or to apply.
When To Use a Business Loan
一个business loan is an excellent financing option if you have an established business that can meet the lender’s minimum qualification requirements. By using a business loan, you’ll build your business credit history, making it easier to obtain funding in the future.
Business loan proceeds must be used only on business expenses. If you have personal expenses that you’re looking to cover in addition to business expenses, choose a personal loan. There are many specific types of business loans available, includingstartup business loans,equipment loans,working capital loans, loans backed by theSmall Business Administration (SBA), andsame-day business loans.
The following types of businesses should consider a business loan:
- Borrowers with good credit
- Established and profitable businesses
- Businesses seeking large amounts of capital
- Borrowers that need funding for a business purpose
Business Loan Pros and Cons
PROS | CONS |
---|---|
Establishes business credit | There are time-in-business requirements |
Loan amounts higher than personal loans | Your business must have sufficient revenue |
Repayment terms may be longer | You may still be personally liable |
How to Apply for a Business Loan
Before applying, check out our article on thesix steps you need to take to get a small business loan. Most providers have easy online applications that can be completed in minutes, with decisions and funding within 24 hours. For larger loan amounts, funding may take up to a few days.
Fundboxis an excellent choice for a company looking for an easy business loan. You can secure a loan of up to $150,000 in just one business day. Stop by Fundbox’s website for more information or to apply.
Bottom Line
There are only slight differences between a business loan and a personal loan for business purposes. One of the biggest determining factors between the two is the intended use of the funds. If you plan to use any funds for personal expenses, you must choose a personal loan. Otherwise, startup businesses will likely lean toward personal loans, and established companies will likely lean toward business loans. Both types of loans can provide you with the funding you need to help your business continue to succeed.