Business loans vs. personal loans | Which is a better value?

Compare business loans vs. personal loans

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There’s a range of financing options available for small businesses. Find out if yours is more suited for a business loan or personal loan.

You may be looking for a loan for your business for many reasons. A sudden spike in sales might have created a need for some additional cash flow, or maybe that influx has created the need to expand. While a tailored business loan would seem to be the obvious choice, many smaller businesses still choose personal loans, favoring their simplicity and easy applications.

Jump to a quick side-by-side comparison of business loans vs. personal loans >>>

Jump to compare top online lenders for business and personal loans >>>

LoanBuilder, A PayPal Service Business Loans

Our top pick: LoanBuilder, A PayPal Service

Customizable business loans with no hidden fees.

  • Min. Amount: $5,000
  • Max. Amount: $500,000
  • One-time fixed fee charged over the life of the loan
  • Acclaimed customer service
  • Requirements: $100,000+ annual revenue, 1+ years in business, 600+ personal credit score

    Main differences between business loans and personal loans

    Business loansPersonal loans
    APRHow business lenders charge for their loans can vary widely. Some offer interest rates as low as 5.5%. Keep in mind that some lenders charge monthly fees rather than traditional loan interest rates.Both fixed and variable interest rates can be offered. Some lenders offer a starting APR as low as 3.99%.
    TermsBoth short term and long term financing options are available. You could get financing for as short as a month with invoice financing or get funds to be paid back within 25 years with SBA loans.Repayment periods are usually between 1 and 7 years.
    Loan AmountMaximums can be as high as $5 million.Maximums can be as high as $100,000.
    EligibilityYour business finances are usually weighed more heavily than your personal finances. Typically requires you to have been in business for at least one year and have monthly revenue of at least $10,000.Typically requires good to excellent credit. Lenders may also evaluate other financial factors such as your income and debt-to-income ratio.
    Ease of applicationYou’ll likely have to submit a business plan and your accounting numbers with your application. Some lenders, mostly traditional banks, may require you to apply for a business loan in person.Applications can usually be completed online in just a few minutes, with some lenders offering preapproval.
    Restrictions on useCan be used for a wide variety of business purposes including financing equipment purchases, payroll, buying a vehicle and much more.There are many general purpose personal loans that can be used for just about any legitimate reason. You can also apply for specifically purposed loans for things like purchasing a car or refinancing student loans.

    Which is easier to apply for, a business loan or a personal loan?

    • Business loan. Most banks want to see detailed projections, business plans and assurances that your company will be in a position to make repayments for the whole loan period. However, many online business lenders only require records of your business’s financial information.
    • Personal loan. You can apply for a personal loan in just a few minutes. The fate of your application for a personal loan will be predominantly decided by your credit and your own personal financial situation. You’ll also need proof of income, and if you are self-employed you will likely need the last two years of tax returns.

    Which offers better value for my business?

    • Business loan. For business taxes, there are significant benefits to keeping your personal and business affairs separate including easier filing come tax season and interest deductions. You could borrow well over $1 million with a business loan.
    • Personal loan. Personal loans can come with a range of money-saving perks, including no prepayment penalties and autopay discounts. The most you can borrow with a personal loan is up to $100,000, although most lenders offer lower maximum amounts. If your businesses requires more financing, it could be cumbersome to take out multiple personal loans from different lenders.

    What if I have business partners?

    If you opt for a business loan, the loan will be held in a joint account with easy access for all partners. With the loan guaranteed by each partner, the risk placed on each individual is greatly reduced. If you decide to apply for a personal loan, lack of joint access to your company’s loan may create issues of responsibility if the business is unable to meet repayments. However, there is the option of taking out a joint application personal loan. These loans usually have a maximum of two applicants, although some may allow more.

    Compare your options for business loans and personal loans

    Rates last updated September 26th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    $5,000
    $500,000
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    $500
    $5,000,000
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    $5,000
    $500,000
    Must have been in business for at least one year with annual revenue of $100K+. Must have a personal credit score of 500+.
    Lending Express Business Loan Marketplace
    $5,000
    $500,000
    At least 3 months in business and $10,000+ in monthly revenue. Your business might also qualify if it's been in business at least 6 months with $3,000+ in monthly revenue.
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    $5,000
    $500,000
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    $5,000
    $300,000
    2+ years in business; $50,000+ in yearly sales; No bankruptcies or tax liens; At least 20% ownership of your business; Fair or better personal credit
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
    National Business Capital Business Loans
    Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
    $10,000
    $5,000,000
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.
    Kabbage Small Business Line of Credit
    A simple, convenient online application could securely get the funds you need to grow your business.
    $500
    $250,000
    Must have been in business for at least 1 year. Revenue minimum is $50,000 annually or $4,200 per month over the last 3 months.

    Compare up to 4 providers

    Rates last updated September 26th, 2018

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Min. Credit Score Max. Loan Amount APR
    Credible Personal Loans
    Get personalized rates in minutes and then choose a loan offer from several top online lenders.
    Good to excellent credit
    $100,000
    4.99%–36% (fixed)
    Even Financial Personal Loans
    Get connected to competitive loan offers instantly from top online consumer lenders.
    580
    $100,000
    4.99%–35.99% (fixed)
    LendingClub Personal Loan
    A peer-to-peer lender offering fair rates based on your credit score.
    660
    $40,000
    6.16%–35.89% (fixed)
    Monevo Personal Loans
    Quickly compare multiple online lenders with competitive rates depending on your credit score.
    580
    $100,000
    3.09%–35.99% (fixed)
    SoFi Personal Loan Fixed Rate (with Autopay)
    No fees. Multiple member perks such as community events and career coaching.
    680
    $100,000
    6.990% – 14.865% (fixed)
    Payoff Personal Loans
    Pay down your debt with a fixed APR and predictable monthly payments.
    640
    $35,000
    5.99%–24.99% (fixed)
    NetCredit Personal Loan
    Check eligibility in minutes and get a personalized quote without affecting your credit score.
    550
    $10,000
    34%–155% (Varies by state) (fixed)
    Best Egg Personal Loans
    A prime lender with multiple repayment methods.
    640 FICO®
    $35,000
    5.99%–29.99% (fixed)
    FreedomPlus Personal Loans
    Consolidate debt and more with these low-interest loans. Cosigners welcome.
    640
    $35,000
    4.99%–29.99% (fixed)
    OneMain Financial Personal and Auto Loans
    An established online and in-store lender with quick turnaround times. Poor credit is OK.
    Varies
    $30,000
    16.05%–35.99%* (fixed)

    Compare up to 4 providers

    Which offers better flexibility?

    Business loans

    • Lenders are likely to enforce strict limits in the first 12 months of your loan, but if you can back up your initial projections you could well be granted an increase in your funding amount.
    • You will need to use the entire loan amount for business purposes.

    Personal loans

    • It’s possible to borrow more funds from a lender, but you may have to have paid a certain amount of your existing loan first.
    • Funds can be used for business purposes as well as for other personal needs.

    Should I get a secured or unsecured loan?

    Business loan. Deciding between a secured or unsecured business loan will often depend largely on the amount of money required. Many lenders require newer business owners to provide collateral for loans, or only offer unsecured lines of credit. However, there are now a number of online lenders offering unsecured loans. Keep in mind that these unsecured loans can come with higher rates, so if you do you have collateral to offer, you may want to consider applying for a smaller loan or comparing other financing options that don’t require collateral.

    Personal loan. Similar to business loans, secured personal loans tend to come with lower rates. However, if the business fails and you’re unable to make repayments, the lender can take possession of your collateral.

    Compare secured vs. unsecured personal loans

    What can I use a personal loan for?

    A personal loan can be used for a number of expenses, from consolidating debt to financing a wedding to paying for a big home improvement project. Many lenders offer amounts as low as $1,000 to $10,000, and you can find options as high as $100,000.

    In order to qualify for the highest loan amounts at the lowest interest rates, you’ll need to have an excellent credit score and a regular source of income that shows you have an ability to handle the monthly payments.

    Can I use a personal loan for business expenses?

    Yes. You can use a personal loan to cover a business expense, but you should understand the risk: if you default, the bank or financial company you borrow from may seize your personal assets rather than the assets of your business.

    However, if you’re just getting started on your business, a personal loan may be easier to qualify for than a business loan. This is because you’ll be using your credit rather than the credit of your business, and you can start on the road to financing your business venture even if you don’t currently have capital or collateral to secure a business loan.

    What can I use a business loan for?

    A business loan is meant to finance a business expense. Because this category is so broad, it can pretty much be used for anything that relates to your business. There are loans meant for specific purposes, like getting an advance on your invoices or buying equipment, but there are also term loans that are given as a lump sum and can be used for whatever your business needs.

    Many banks or financial companies will want you to have a plan in place that details how you’re going to use the loan, and your approval will be based on both your personal credit and your business’s income and age.

    Can I use a business loan for personal expenses?

    It depends on the personal expense you’re planning on using the loan for, but in general, it’s not recommended. Accountants and lawyers both recommend that you keep your business finances and personal finances separate to make it easier for you to track expenses and inform the IRS of your different streams of revenue.

    In addition, your business loan contract may specify a specific use for your loan funds. If this is the case, using your loan funds for any other purpose, even if it’s related to your business, might constitute a breach in contract that could default your loan.

    Should I take out a business loan or a personal loan?

    Consider a business loan if…

    • Your business has an established financial history
    • You need to fund a specific business expense or take out an advance on an invoice
    • You want to build a relationship with your bank or financial company
    • You have collateral from your business to use for the loan
    Consider a personal loan if…

    • Your business is new and hasn’t built credit
    • You’re comfortable risking your personal finances for your business
    • You have excellent credit and can get a lower rate with a personal loan
    • You need to cover both personal and business expenses

    When is a personal loan better for my business?

    There are times when personal loans are simply a more reasonable option for a business. Although it puts your name and credit on the line, a personal loan has less restrictions than a business loan and is generally easier to qualify for.

    You’ve got a new business

    There are few options for businesses that have recently opened. This is because your business doesn’t have a history of revenue and lenders can’t be certain you’ll make it long enough to repay your loan.

    Even if you’ve found a lender willing to loan your business money, you’ll likely face higher rates than if you’d gone with a personal loan. For instance, a personal loan from Prosper has a low starting APR of 6.95% whereas a business loan from LendingClub starts its APR at 9.77%. That means borrowing the same amount as a business loan will cost you more than if you’d gone with a personal loan.

    You need quick funding

    Business loans that don’t rely on your revenue take a while to process. It can be weeks or even months before you see your loan funds deposited into your account, and this is after you’ve spent valuable time crafting a business plan that showcases how you intend on using the loan.

    A personal loan takes very little time, and many online lenders don’t require you to submit extra paperwork to justify the loan’s purpose.

    Your business doesn’t have collateral

    Your business may have little to no collateral to provide as security for a business loan. This means higher interest rates and, usually, a personal guarantee that holds you and your partners responsible should your business default. It also means that you may not be able to access larger amounts offered by business loans since lenders will want to ensure you have liquid assets to cover your full loan amount.

    Personal loans don’t require collateral. They’re unsecured, and if you have a high enough credit score, you may be able to borrow up to $100,000. Many personal loans also allow you to apply with a cosigner, which can increase your likelihood of being approved for a large amount at a low interest rate.

    Other factors to consider

    • Sole proprietor or partnership? There are reasons why a business loan would most likely be better suited to a company run by partners. However, a sole proprietor may appreciate the control they have over a personal loan, which will likely involve a smaller sum of money.
    • The length of the loan. For a shorter period, the lower rates of a personal loan might hold more appeal. However, over an extended period, for example, 10 years, this advantage might be overshadowed by the ease of use offered by a business loan.
    • The age of the company. One of the most common issues with a business loan is getting access to it in the first place. If your business is less than a year old, you could compare startup loans or consider personal loans for business use.

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