Personal Loan Vs Business Loan: Which is Right For You?
If you are a small business owner who is looking for new ways to finance your startup, you may be on the lookout for loans that you can acquire. Two of the most popular funding methods for business owners are personal loans and business loans. Both of these options are worthy contenders in the arena of business financing, but depending on your individual needs and circumstances, the best option for you will differ. In today’s article, we have a look at both of these types of loans, what they mean, and which one is the best option to pick based on your individual needs. Read on to find out more!
What Is The Difference Between a Personal Loan and a Business Loan?
The first thing we need to look at is the differences between what makes a personal loan and what makes a business loan. According to Latitude Financial, personal loans are loans that are guaranteed based on your individual credit history. Personal loans are often easier to obtain than a business loan if an individual has a good credit history. In general, personal loans are meant for personal purchases whilst business loans are meant for business needs and business-related purchases.
What Can I Use A Personal Loan For?
The next thing we will have a look at is what one can use a personal loan for. Typically, personal loans can be used for anything. Lenders will often ask you the purpose of your loan, however, in most cases, an individual needn’t agree to spend a personal loan on any specific purchases when taking a personal loan out. A personal loan is a lump sum deposit that you may use as you see fit.
Do keep in mind that certain lenders put a restriction on what you can or cannot use a personal loan for, so always read the terms and conditions before setting out to get your personal loan. Most personal loans can be used to pay off any existing debt, though some lenders will restrict you from using them to pay off tuition debt/expenses. Another thing to keep in mind is skip tracing, lenders use this tool to locate a client and/or verify their identity. Use the most up-to-date information on your application and make payments responsibly.
What Can I Use A Business Loan For?
Business loans can also be used for anything that is related to your business. Most business loans come with restrictions that ensure you are only using loaned funds for business-related purchases. This can include expenses incurred when updating technology, purchasing new equipment, renting commercial space, marketing the business, hiring new employees and covering daily business expenses. Business loans are usually meant for purchases that will generate additional revenue for the business whilst covering the cost of interest accrued. If you want to get a business loan, the Small Business Administration can help you choose from which SBA business loans will be best for your business.
Do keep in mind that personal loans can also be used for business-related expenses, but it is important to remember that you will be liable for paying the loan back – not your business.
Which Loan Is Right For Me?
Now that we know the insides of both types of loans, it is time to decide which one is the best option for your needs. A general rule of thumb is that business owners should never mix personal and business expenditures. This makes choosing which type of loan easy for most business owners, as it is advised to stick to the “business for business” and “personal for personal” rule.
However, smaller business owners are often simply looking for small business start-up loans to kickstart business growth. Since a majority of business loans often require at least a few months of business history, this may make it a little difficult for business owners to obtain a business loan. This is where taking a personal loan for business can come in handy. A personal loan can tide you over with a lump sum that will allow you to build up your business’ credit history.
Personal loans are ideal for people who:
- Have great credit history
- Are okay with taking risk against personal credit
- Are a startup with little to no business history
- Make a sizeable salary
Business loans are ideal for people who:
- Are not willing to put all the loan risk against personal credit
- Have a business that is the main source of income
- Would like to develop a relationship with a lender for future financing
- Have strong collateral to offer through your business
We hope that this article has given you some valuable insight into which loan is the ideal option for your individual needs.