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 5.5% | Start around 6% |
| 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
Business loans tend to offer better rates and terms than personal loans. And they have more flexible funding options – like lines of credit, merchant cash advances and accounts receivable financing.
You may be able to borrow more with a business loan while building a relationship with a lender — two things that could drive the growth of your business in the long run.
2. Business loans offer more flexibility
A small business loan may be used for any business expense, with few exceptions. You can use your funds to pay for inventory, employees, taxes and other common costs. Online lenders are particularly flexible when it comes to how you use your business loan.
Personal loans can also be used for almost any purpose, but some lenders won’t let you borrow if your loan will be used for business purposes. But if they do, understand the risk: A bank, credit union or online lender can seize your personal assets if you default.
3. Business loans may be harder to qualify for
With a business loan, most lenders want to see detailed revenue projections and a business plan. And they only work with businesses that meet their minimum revenue and time in business requirements. However, you can potentially borrow a lot more with a business loan.
Because personal loan approval relies mostly on your credit score and income, the application process tends to be simpler and faster. A self-employed business owner will likely be asked to provide two years of tax returns as proof of income.
4. Personal loans are unsecured — business loans may not be
Personal and business loans both offer unsecured options, but personal loans are typically unsecured. On the other hand, business loans may be secured or unsecured – but you may have to provide personal guarantee with either type.
The Small Business Administration, or SBA, offers a competitive unsecured option if you qualify. However, your business history and business finances will play a big role in the approval process, so scoring an unsecured loan will depend largely on your business credit.
Lendio business loans
Finder score
| Loan amount | $1,000 – $5,000,000 |
|---|---|
| APR | Varies by lender |
| Min. Credit Score | 500 |
Choosing to get a business loan may be a better choice if the following factors are true.
If your business has used a business credit card or smaller business loan in the past, you may be able to qualify for lower interest rates. Lenders want to know that you have personal experience in the industry and handling debt. So a credit card or other type of loan under your business’s name will improve your chances of getting approved.
Small business loans typically require collateral, although some online lenders may offer unsecured term loans and SBA loans are almost always unsecured. The interest rate you get an a secured loan will be lower than with an unsecured business loan or a personal loan.
But keep in mind that providing collateral won’t mean you aren’t liable. Lenders frequently require a personal guarantee from anyone who has a 20% or higher stake in the business.
Loan amounts are significantly lower when you use a personal loan. If you have a particularly big expense, look into a business loan. Small business loans are meant to cover common expenses like payroll, taxes and expansion. And in many cases, you can finance equipment or inventory through a business loan — something that may be out of reach if you choose a personal loan with a smaller loan amount. You can even consolidate business debt with a business debt consolidation loan.
One of the biggest benefits business loans offer is the relationship you start with a lender. It’s not guaranteed, but many lenders consider your business’s positive payment history favorably and may offer lower loan rates because of it.
Personal and business loans will impact your credit. But only business loans will improve your business credit score.
LightStream personal loans
Finder score
| Min. credit score | Good to excellent credit |
|---|---|
| APR | 7.49% to 25.99% |
| Loan amount | $5,000 to $100,000 |
A personal loan may be a better choice if the following factors apply.
With no business history established, new business owners frequently struggle to find loans. A personal loan is a good alternative because it relies on your personal credit score more than any other factor. And while you may not be able to cover all business purposes with a personal loan, you can certainly get started working toward financing some of the more common startup expenses.
If your personal credit score is close to perfect, a personal loan is hard to beat. Because lenders rely so heavily on credit scores and income to determine eligibility, you’ll likely have access to much lower rates than with a short-term business loan, which is generally your only option when you’re a startup.
A personal loan is flexible because of how you can use your funds. Since you can cover personal expenses and business expenses, you’ll have more wiggle room to consolidate debt and get your idea off the ground.
Personal loans are fast. They may take a few days to process, but most lenders are able to fund a loan within a week. This makes a personal loan the best choice if you need fast funding but don’t want to — or can’t qualify for — business lines of credit.
Whether your business is just starting out or it’s been going for a while and just doesn’t have the strongest revenue, it might be better to rely on a personal loan if you have a decent cash flow outside your business or a hefty personal savings account. With the extra capital on hand, lenders may be willing to extend a larger loan or offer more favorable terms than they would to your business.
Before you start comparing lenders, here are a few final points you should consider.
Compare $50,000 no-doc business loans for an expedited lending process.
You may be able to get a business loan with EIN only, but they can be harder to find.
Explore 10+ types of business loans and other ways to get business funding.
Compare $5,000 business loans and what you need to qualify.
Compare one business loan provider versus another in these head to head matchups.
Fast funding for business emergencies. Learn more.
Small businesses with insufficient credit can take advantage of ACH business loans.
Learn about business loan interest rates and which business loans have the highest and lowest rates.
Compare the best ten lenders that offer no-document or low-doc loans.
These seven lenders are willing to work with cannabis businesses. Compare their rates and requirements.