For a lot of us, there will come a time in our lives when we may need help financially. Whether that’s due to an unexpected expense, the loss of a job, or the need to pay off a loan.
And it’s not just our personal finances that are sometimes in need of a boost. Many businesses use loans to get them where they need to be if they’re just starting out or they need help to expand and grow.
There are a few differences between business and personal loans, which we will explore below.
What Is a Business Loan?
Business loans are intended to be used solely for business purposes. It could be to start a new business, for example, if you need a loan for a restaurant start up, the funds provided by your chosen lender can allow you to get your idea up and running.
They can also be used if you plan on expanding your current business and you need to hire and train more staff or if you need new premises. Simply put, these loans are a way for entrepreneurs to cover the costs of running their businesses.
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What Is a Personal Loan?
A personal loan is a sum of money that you borrow from your chosen lender, for example, an online direct lender or bank, that you pay back over a fixed amount of time for your own personal use.
People choose personal loans for various reasons whether that’s because of an unexpected expense, an emergency in their home they are unable to pay for outright or to pay medical bills.
There is a huge range of personal loans available, so it is important to research to find the right one for you.
Personal Vs. Business
It may seem obvious that if you’re starting a business, you’d opt for a business loan but it’s not that simple. Here are a few advantages and disadvantages of using a personal loan to help your business.
- Personal loans are easier to obtain and therefore will result in your business getting the cash boost it needs, quickly
- If you’re setting up as a sole trader or a start-up, a personal loan could be a great choice as you don’t need to have a company history to be approved
- Personal loans mean you are liable if you cannot repay, and your credit score could be affected
And now let’s look at business loans:
- A business loan can allow you to borrow a greater amount as it is based on your projections for growth, giving your business the boost it needs from the very start
- Business loans allow your company to build good credit which could come in handy if you need to take out another loan in the future
- business loans tend to take longer to be approved than personal loans
There are pros and cons for each of these loans and it is important to take them into account before deciding on which would be the most helpful for your business.
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