There comes a time in nearly every person’s life when they require a little financial assistance. Whether you’re surveying real estate opportunities or looking to start a small business, some quick cash can make a big difference in the right circumstances. But what’s the difference between a business loan and a personal one? And which one should you apply for? Today, we’ll answer those questions and more. Check it out here:
Personal loans are fairly straightforward. To obtain a personal loan, an individual simply approaches a bank or alternative lender and applies for a loan. Creditors will then check your personal credit score, your credit history, and ask what you want to use the loan for. Note, you can use a personal loan to cover business expenses. So, for instance, you could use funding from a personal loan to purchase office lobby signs or a new POS system. However, it’s not always a good idea to mix personal finance with business dealings. For one, if the deal goes south, your personal credit will take a hit –– not your business’s. Secondly, creditors will typically restrict how much money you can access at a single time, and interest rates are generally higher on personal loans than business loans.
Business loans are, unsurprisingly, geared toward small business owners –– usually for the purposes of starting a business from scratch. While banks and creditors will examine an entrepreneur’s personal finance record before they grant a business loan, many are more interested in a company’s credit and long-term viability. Given that fact, securing a business loan is a good deal more difficult than a “run-of-the-mill” personal loan. It could take months before your bank decides whether or not to give you a loan, and even then it’s no guarantee they’ll accept your proposal. On the plus side, small business owners who do land business loans –– especially SBA loans –– can get quick access to substantial capital with relatively low interest rates.
The Bottom Line
Modern professionals have plenty of debt sources to keep up with. From student loans, to mortgage payments, to small-business expenses –– it’s enough to confuse and frustrate anyone. That’s why it’s often a wise idea to monitor your finances closely and not to mix personal resources with business ventures. Of course, there are exceptions to every rule, but using personal loans to pay off business debts is a risky strategy that may or may not work out in the long run.