Business loan vs. personal loan: What you need to know

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 loan vs. personal loan: 4 main differences

Here are four factors to consider when choosing between a business loan or a personal loan.

1. Business loans typically offer better value

• Lower interest rates. They cost of business loans is usually less than the cost of personal loans over time.
• 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

Finder Score	Loan amount	Loan term	APR
Finder score 9.5 Excellent Fundera business loans	Finder score 9.5 Excellent	$2,500 – $5,000,000	3 months to 25 years	Varies by lender	Go to site View details Compare product selection Compare	loading	Why we like it Fundera by NerdWallet is a business loan marketplace that connects small business owners with multiple lenders through a single application. The platform offers access to term loans, SBA loans, lines of credit, equipment financing and more, with loan amounts ranging from $2,500 to $5 million. With a quick online application using only a soft credit check, Fundera has helped over 77,000 small businesses secure more than $5.4 billion in funding. The platform provides dedicated loan specialists for personalized guidance, and funding can be as fast as one business day. Pros & cons Pros Free service Single application connects you with multiple lenders Soft credit check won't impact credit score Fast funding possible within 24 hours Cons Rates and fees aren't disclosed upfront Not a direct lender, terms set by partners Limited network compared to larger marketplaces
Finder score 9.6 Excellent Lendio business loans	Finder score 9.6 Excellent	$1,000 – $10,000,000	3 months to 25 years	Varies by lender	Go to site View details Compare product selection Compare	loading	Why we like it Lendio is a marketplace that allows you to apply once and browse multiple business loans your small business could qualify for. It has few requirements and a network of over 75 lenders, making it one of the most reliable ways to find funding. But the interest rates you face could be high, and Lendio faced action from the FTC in 2020. Pros & cons Pros Large network of lenders Quick funding options Plenty of positive reviews Cons Government action in 2020 Potentially high interest rates

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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

Finder Score	Loan amount	Loan term	APR
Finder score 9.5 Excellent LightStream personal loans	Finder score 9.5 Excellent	$5,000 to $100,000	24 to 240 months	6.49% to 24.89%	Go to site View details Compare product selection Compare	loading	Why we like it LightStream is frequently a top pick — and it deserves it. You won't find more competitive interest rates on a personal loan, and you could qualify for up to $100,000 for your small business. Just be prepared for a hard credit pull and stricter eligibility requirements than most other personal lenders. Pros & cons Pros Loans up to $100,000 Multiple APR discounts available Extremely competitive rates Cons No preapproval process Good to excellent credit required

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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.

Written by

Megan B. Shepherd

Editor, Loans & Insurance

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. See full bio

Megan B.'s expertise

Megan B. has written 39 Finder guides across topics including:

• Personal loans, business loans and home loans
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