A business loan might look like the smarter choice if you are going to be spending the money on your business but personal loans still continue to be a popular alternative choice. Like it is the case with any decision, the personal loans vs small business loans decision should be made with the utmost care weighing both the pros and cons of each option.
When to Choose Personal Loans for Your Business
In the personal loans vs small business loans fight, personal loan emerges victorious in the ease of approval round. Lenders only consider the personal credit score when considering applications for personal loans whereas a business lender will look at the gross revenue, business model and the complete company accounts before they close a loan. The process is time consuming and much stricter than that for a personal loan. Since time is money in the business world, it is better to choose a personal loan when comparing personal loans vs small business loans.
Personal loans can also be unsecured which means that you do not have to put up any asset as collateral to be able to take out a loan. This can be an obstacle for those business owners who do not own any valuable assets.
There are areas where personal loans lose in the personal loans vs business loans battle. The lending limit for a business loan is much lower and they offer higher interest rates as well. These payments can severely affect the profits of a business. Also taking a personal will take away the business’ chance to build a credit score and prevent it from obtaining any business loans in the future as well. Additionally in the event of a business bankruptcy, your personal credit score will also plummet which can take years to recover from.
When to Choose Small Business Loans
A business loan can help you keep the business and personal finance separate and it plays a very important role in helping the business flourish. A business loan limits the owner’s personal liability and its responsible use will help a business establish their credibility in the eyes of lenders and traders.
However when looking at personal loans vs small business loans the business loans are difficult to secure especially if the business has no established line of credit or a poor credit score. The process involves tedious filing of paperwork and there is a bigger fear of rejection.
