Compared to personal loans, business loans offer a wider variety of loan types, higher loan amounts, more competitive rates and longer terms. But to qualify, you’ll likely need to be in business for at least a year or two with regular monthly revenue.
Personal loans like Upstart are generally easier to qualify for, especially if you have good personal credit and regular income. But borrowing amounts are limited, generally capping out $100,000 with shorter repayment terms of one to 12 years.
Here’s a breakdown of the main differences between business and personal loans, so you can make the right choice for your business.
Here’s a quick overview of the differences between business and personal loans.
| Business loans | Personal loans | |
|---|---|---|
| APR | Start around 6% | Start around 6%, averages 11.14% |
| Terms | 18 months to 25 years | 1 to 12 years |
| Loan amounts | Up to $5 million | Up to $100,000 |
| Eligibility | 1 year in business, $10,000 or more in monthly revenue | Good to excellent credit, regular source of income, low debt-to-income (DTI) ratio |
Here are four factors to consider when choosing between a business loan or a personal loan.
1. Business loans typically offer better value
2. Business loans offer more flexibility
3. Business loans may be harder to qualify for
4. Personal loans are unsecured — business loans may not be
Choosing to get a business loan may be a better choice if the following factors are true:
A personal loan may be a better choice if the following factors apply:
Some lenders let you use a personal loan for business purposes, while others don’t. If you use a personal loan in a way your lender forbids, you could run into problems like fees, penalties or even loan default. Always check the fine print before assuming it’s okay.
Interest on a business loan is usually deductible, so you can subtract it from your business taxes and save money. Interest on a personal loan is generally not deductible, even if you spend it on business expenses. Choosing the right loan type can help you avoid unexpected tax costs and keep your business finances cleaner.
Yes, you can, but personal loans typically have lower limits and higher rates than business loans, so they’re best for smaller startup costs or short-term expenses.
Business loans usually require at least a year in business, steady revenue, and sometimes collateral, while personal loans focus mainly on your credit score, income, and debt-to-income ratio.
Personal loans generally don’t build business credit, so if your goal is to grow your business credit profile, a business loan is the better choice.
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