Business loans offer better value and bigger amounts, but are harder to qualify for.
Personal loans are easier and faster, but have lower limits and higher rates that business loans.
New businesses usually start with a personal loan or credit card.
Established businesses should avoid using personal credit when possible.
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.
Business loans vs. personal loans
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
Business loan vs. personal loan: 4 main differences
Here are four factors to consider when choosing between a business loan or a personal loan.
Longer repayment terms. Spread out payments to reduce monthly strain.
Larger loan amounts. Access the funds you need to grow your business.
Variety of products. Includes lines of credit, MCAs, and invoice financing.
Build lender relationships. Positive history can help future financing.
2. Business loans offer more flexibility
Use funds for any business expense. Covers inventory, payroll, taxes, and more.
Fewer restrictions from online lenders. Funds can often be used as needed.
Personal loans may limit business use. Some lenders don’t allow loans for business purposes.
Risk to personal assets. Defaulting on a personal loan for business can put your personal finances at risk.
3. Business loans may be harder to qualify for
Require documentation. Lenders often want business plans and revenue projections.
Minimum business standards. Must meet revenue and time-in-business requirements.
Qualification based on business performance. Not just your personal credit.
Personal loans are simpler. Approval mostly depends on credit score and income.
Self-employed need proof. Two years of tax returns may be required.
4. Personal loans are unsecured — business loans may not be
Mostly unsecured. Personal loans rarely require collateral.
Business loans vary. Can be secured or unsecured depending on lender.
Personal guarantees often required. Both types may tie you personally to repayment.
SBA loans offer unsecured options. But approval depends on business credit and finances.
Business loans overview
When to consider a business loan
Choosing to get a business loan may be a better choice if the following factors are true:
Established financial history. If your business has used a credit card or small loan before, lenders may offer better rates and terms.
Can provide collateral. Many business loans require collateral, which can lower your interest rate, though a personal guarantee may still be needed.
Large or specific business expenses. Need payroll, taxes, inventory, or equipment? Business loans usually cover bigger costs than personal loans.
Want to build a relationship with a lender. Positive repayment history with a business loan can help you qualify for better terms in the future.
Looking to improve business credit. Unlike personal loans, business loans can help establish or boost your business credit score.
Need a longer loan term. Business loans often offer more flexible repayment schedules, which can make budgeting easier.
Personal loans overview
When to consider a personal loan
A personal loan may be a better choice if the following factors apply:
Your business is new. Personal loans rely on your personal credit, making them a good option if your business hasn’t built a financial history yet.
You have excellent credit. High personal credit scores can get you lower rates and better loan terms than most startup business loans.
Need to cover both business and personal expenses. Personal loans are flexible, letting you handle multiple expenses or consolidate debt.
You need quick funding. Personal loans often fund within a week, making them ideal for fast access to cash.
You’ve built personal savings. Extra cash outside your business can help you qualify for a larger loan or better terms.
Are personal loans allowed for business use?
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.
Personal loan vs. business loan: Taxes
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.
Frequently asked questions
Can I use a personal loan to start a business?
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.
How do lenders decide my eligibility for a business loan versus a personal loan?
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.
Can using a personal loan affect my business credit?
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.
Megan B. Shepherd is a personal finance expert and editor for loans and insurance at Finder.
Her personal finance expertise has been featured on Forbes, Nasdaq, MediaFeed, Fox News, Time, Reviews.com, and carinsurance.com, adding invaluable information related to personal loans, financial strategies and smart borrowing tactics.
Megan graduated from the University of Texas at Dallas with a BS in Business Administration with an entrepreneurial focus. She's worked as a certified financial adviser and has earned certificates of completion from A.D. Banker & Company.
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