From investors to loans to business credit cards, there are many ways to get more money to grow your business. The two most popular options are getting a business loan or a personal loan. Both these options will work, whether trying to start a new project or making invoices liquid. Deciding on the best option will always depend on the specifics of the business.
It’s always important to be aware of the things to consider before coming to a business decision. Personal loans and small business loans have different qualifications and are meant for different things. They also affect your credit so much.
Difference Between Business Loan and Personal Loan
Personal loans are always guaranteed using personal credit history. Those with good credit history find it easier to obtain, unlike small business loans.
Both personal and small business loans come in many varieties, from auto loans and mortgages to installment loans. Generally, personal loans are for personal purchases, while business loans are for funding business-related purchases.
Personal loans can essentially be used for anything. However, some of the lenders can have specific things that they want their loans to be spent on. Ensure that you read and comprehend their terms and conditions first before going for the loans.
Personal loans can be easier to be approved, especially when you are new in the business. They also require less paperwork and thus making the process shorter. Unlike business loans, they do not require assets to be approved. All these make personal loans easier to acquire.
Small business loans
Small business loans may come with their terms, known as small business loan terms. According to Lantern Credit, these terms are essential because they help make the right decisions about the loan.
Small business loans should always be used on things that can generate more revenue, like hiring more employees, marketing your businesses, among others. Other lenders can allow you to use the loan to pay existing debts.
Small business loans allow you to separate your personal and business finance while also limiting your liability. Taking this loan will build your business credit by showing you future lenders that you will pay your loans. Additionally, this loan allows you to take an enormous amount of money with lower interest rates.
How to Get Approved
The approval processes between the two are always slightly different. For personal loans, you need a good credit history with a stable income. It also requires a low enough debt-to-income ratio to take on the burden of applying for the loan. Personal loans always come in small amounts and have a loan term of between two and seven years.
On the other hand, small business loans will need an excellent credit history. Most lenders will need adequate annual revenue and also someone who’s been in business for a long time.
More paperwork is needed and you also have to specify what the loan is for. Finally, information about your legal structure and some documentation will always be needed.
Banks, online lenders, and credit unions offer both personal and business loans. However, deciding what is best for you comes down to your business history, goals, and credit.