Commercial vs. Personal Loan: Benefits and Downsides for Small Business Owners

Almost every business starts small. If you want to take your company to the next level, you should always be looking for ways to make it happen. You must have enough capital to fund your business development, which isn’t easy for most small business owners.

Fortunately, there are different types of lending options available to help entrepreneurs grow their businesses. Commercial and personal loans are the most common among them. If you are confused about which of these lending options will work for your small business, consider the pros and cons of both commercial and personal loans listed below.    

Advantages of Commercial Loans

A commercial loan is one of the avenues to get the funds needed to finance your company’s high operational costs. Aside from that, it can also help you cover up the payrolls and purchase equipment used in the manufacturing process. Here are some of the benefits every small business owner can get when taking out commercial loans instead of other lending options.  

The Lowest Interest Rate

Compared to other loan options available in the lending industry, commercial loans have the lowest interest rates. With that, you can access necessary funding, and at the same time, maintain lower overhead costs.

Can Cover Bulk of Start-up Costs

One of the key benefits of commercial loans is the amount of cash you can receive after the qualifying process. You can borrow a large amount of money to cover your start-up costs, such as purchasing equipment, payrolls, and other production fees.

Disadvantages of Commercial Loans

For some start-up entrepreneurs, getting a commercial loan may be the only means to obtain their ideal business or take their small company to the medium-sphere. While this loan option can get a business off the ground, it also has disadvantages, especially to small business owners. Below are some of them:

The Application Process May Take Some Time

Banks and lenders have a lot of factors to consider before granting a commercial loan. With that, the application process may take some time and can be more exhaustive compared to personal loans.

Tight Restrictions

Even if you pass the qualification process and the bank grants your commercial loan, you may still need to adhere to strict restrictions within the duration of the loan.

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For example, the lending institution may require you to keep the debt-to-equity ratio of your business. If your debts become too high compared to your equity, the bank may order immediate repayment of the outstanding loan balance. 

Advantages of Personal Loans

Personal loans are a popular funding option for consumers as well as start-up business owners. Since it’s easier to apply for, some entrepreneurs opt for this type of lending option instead of applying to commercial loans.

However, if you’re hesitant about getting fast personal loans to fund your small business’s essential expenses, the benefits you’ll get from this lending option may change your mind.  


One of the good things about personal loans is its flexibility when it comes to spendings. You can use the cash you’ll receive to fund your marketing strategy, purchase equipment, or other personal uses.

This loan option is convenient, especially for sole proprietors operating out of their home. They can divide the cash between business and personal use to fund any shortfalls in their everyday expenses.

Easier to Qualify

Small business owners have a higher chance to qualify for personal loans compared to commercial loans. Lenders will only check your personal information, finances, and credit history to determine if you’re qualified to be a borrower. With that, your business’ size and level won’t matter, and you don’t have to present your company’s revenue when applying for a personal loan.  

Ideal For Start-ups

For entrepreneurs who have just started their business ventures, a personal loan is the ideal lending option to fund their businesses’ operational costs. They don’t need the credentials required by the bank to borrow money from a personal loan lender.  

Disadvantages of Personal Loans

Personal Loans are undeniably an excellent option for small business owners and start-up entrepreneurs based on the benefits it offers. However, it’s important to consider its downsides to weigh all the essential factors and determine if taking out a personal loan is a good idea. Here are a few of them:

Your Personal Credit Is At Risk

If you use your personal loan to fund your business, and your company can’t repay it, your personal credit will be at risk. Any missed payments will be recorded on your credit report. For that reason, some businesses prefer not to blend their personal and company’s finances. 

You Can Only Borrow Particular Amount of Cash

Unlike in commercial loans where you can borrow as much as you need, you won’t be able to borrow a large amount of cash when applying for a personal loan. If you’re starting up a business, this loan option may not cover all your essential operational costs.


If you’re one of the small business owners looking for ways to finance the development of their business, both commercial and personal loans may work. These avenues for funding can help you take on another project, equipment purchases, and other essential operational costs. If you haven’t yet decided which option is right for your start-up business, weigh the pros and cons of these two loan options to come up with the best decision for your company’s growth.