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Business and Personal Loans

What's the difference — and which makes the most sense for you?

When you have both business and personal loans available as financing options, which one makes the most sense? Here are a few things to consider.

So, you need a loan for your business. You just aren’t sure if a personal loan or business loan makes the most sense. The answer is easy: it depends.

Experts typically recommend keeping business and personal finances separate. But, when it comes to loans, it may not be that cut and dry. Talk to your accountant or financial advisor about your specific situation. But in the meantime, there are several things to consider. Let’s start with the amount of your loan.

How Much Do You Need?

Your answer to this initial question may quickly determine the type of loan you need. Personal loans tend to be smaller, in the $1,000-$100,000 range. Business loans can be for larger amounts.

Beyond that, here is a general comparison that may help — keeping in mind these are high-level guidelines and there will be exceptions:

Personal Loan Business Loan
How easy is it to to apply? Easy process. Many applications can be completed online quickly. Approvals can also be made sooner. Depending on the type of business loan, could be a longer process. More paperwork is typically required.
What financial documents are needed or reviewed? Your credit score and other personal financial information are factors. You’ll need to provide statements and financials for your business, and possibly a business plan. Personal credit information may also be reviewed.
What amounts are available? Tend to be smaller, from $1,000 - $100,000. A wide range, up to $5 million.
Interest rate comparison? Generally higher than business loans. Typically lower than personal loans.
What terms are available? Often range from 12-84 months. Short or long-term options offered.
Are loans secured or unsecured? Generally unsecured, so no collateral is required. Often secured, requiring collateral.

Business Loans: A Variety of Options

One thing worth mentioning about business loans is that there are many different options available. Matching your needs with the right type of business loan could make all the difference for you. And, depending on the lender, the requirements and hassle factor could be less intensive. Examples include:

  • Working capital loan – A working capital loan generally allows you to get funds for any business need. What’s more, you can get this boost of cash more quickly than many other types of business loans.
  • Equipment finance loan – If you need new equipment, make sure you look into the equipment finance loan option. The terms may be more flexible, and are often easier to secure. Plus, you can take advantage of possible tax savings.
  • SBA loan – If you are starting your business or making improvements, you may qualify for an SBA loan. They are funded by banks, credit unions and other lenders, but guaranteed by the Small Business Administration. SBA loans include startup-friendly terms and benefits.

Extra Items to Note

  • With a personal loan for business expenses, if your business can’t pay back the loan, you could be personally responsible for paying it back.
  • A business loan will help build your business’ credit score and history.
  • A business loan uses your personal credit score, but it does not go on your personal credit record.

Deciding which type of loan to get for your business can seem overwhelming. It doesn’t have to be when you do your homework and talk with a professional. The sooner you get started, the sooner you’ll have the money you need for your business.

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