Growing your business takes resources, and sometimes you’ll need a little extra money to turn your exciting idea into reality. There are a few options for business owners when it comes to applying for loans or searching for alternative money options. Two popular options are applying for either a personal or small business loan—which allows owners to not rely on outside investors—or give up equity.
Deciding which option is best for you and your business will depend on your project needs and what you can afford. These loan types are used for different purposes and have qualification criteria that you may or may not meet. Each varies in how they’ll impact your credit, so carefully considering your options will save you time and resources.
What’s the Difference Between Personal Loans and Small Business Loans?
In today’s fast-paced society, opportunities arise every day with new ways to invest and fund all types of projects. Starting or expanding a business requires tangible and profitable outcomes to continue the success of the company. Both personal and small business loans offer various advantages and can help you develop your business project if appropriately used.
For those interested in applying for one of these loans, you’ll need to consider the differences between each to determine the most suitable loan for you. Read below for information on the two popular loan types:
A personal loan uses your personal credit history to determine whether or not to offer you a loan. Personal loans are considered easier to acquire, and you’re typically able to use the loan for anything. Getting approved requires little to no trading history and can be done relatively quickly, which works well if you’re a small or new business.
Small Business Loans
A small business loan comes with more restrictions and should only be used for business expenses. Some examples of expenses that this type of loan covers are purchasing new equipment, rent for your office or business space, and uniforms for employees. However, small business loans need substantial trading history from your business and have more limitations on what can be purchased.
The amount needed and the ability to qualify for the loan play a prominent role in deciding which loan is best suited for you. If you’re looking for a larger loan that has low-interest rates and builds your business’s credit, the small business loan is your best bet. If you need a loan and cannot qualify for a small business loan, a personal loan is a great option.
Should I Use a Personal Loan for My Business?
You can use a personal loan for your business, but you’re liable for repaying that loan, and it can be challenging to keep your business and personal finances separate. If you’re unable to pay the minimums or fall short, that will affect you more than your business. Consider the following for some advantages to using a personal loan:
- Easier approval rates: If you haven’t been in the business industry for long, you’ll often have an easier time getting approved for a personal loan than for a business loan. Because the loan approval is mainly from your credit score and income, you’ll have an easier time qualifying as long as you have those two pieces.
- Funding is faster: Because personal loans require less documentation than business loans, the process of approving the loan is a lot faster.
- There’s often no collateral: One of the best parts of a personal loan is that they’re unsecured. This means you’re not required to put collateral down to withdraw a loan. An example of collateral for a secured loan can include cash in a savings account or a home. However, depending on who’s offering you the loan, you may be required to put down something that holds monetary value if your credit score is low or if the personal loan is secured.
Personal loans are great for businesses with little to no trading history, but before you apply for the loan, make sure you read and discuss the conditions with the lender. Typically, lenders explicitly state what the personal loans are used for and the restrictions that are put in place.
Contact Our Debt Settlement Lawyers at McCarthy Law Today
Putting time and effort into your business is a lifelong dream and commitment. While you’ve placed a lot of thought and consideration into creating your business, you may have caught yourself in sticky financial situations. Making major financial decisions for yourself and your business may feel frightening and burdensome, but a legal debt settlement attorney may be able to help.
At McCarthy Law, our team of experienced debt settlement lawyers works to provide clients with reliable guidance and assistance with financial settlement needs. We know how important your business is, and we want to help you achieve and protect your financial stability.
Call (855) 976-5777 or fill out our online contact form for more information about how we’re able to assist your financial situation and to talk with one of our award-winning attorneys.