There are plenty of loans available in the marketplace today for all types of purposes. As a result there is so much information and mumbo jumbo to cut through and sometimes it can be a case of analysis paralysis. At the end of the day it will basically come down to two things – are you using the line for business purposes or personal purposes? And what is the difference between the two? Let’s take a look now at the difference between personal loans and business loans.
Personal Loans Vs. Business Loans
So, what the difference between the two? Fundamentally there is very little difference between the two other than the purpose of the loan and what it is being used for. So let’s take a closer look at how each loan product works and what the differences are.
Since the dawn of civilisation, business loans have been used by entrepreneurs as a source of funding to help with business expansion, solving cash flow issues or to help overcome the many surprises that tend to arise in the course of doing business.
However, after the financial crisis of 2008, many banks and big lenders tightened their belts and became very picky about who gets credit and who doesn’t. As a result of this, many entrepreneurs have struggled to find reliable sources of funding for their businesses. Alternative lending came in to save the day by offering small business owners and upcoming entrepreneurs an alternative source of funding.
The main benefit of these non-bank lenders is that if you are seeking smaller amounts of finance, you can expect faster loan approval and minimal paperwork as the applications are all done online. This means you get access to your cash sooner so you can strike while the iron’s hot. In summary, the main consideration of a business loan is the business and not the individual who owns the business.
When it comes to personal loans, the application process and requirements are largely the same as applying for a business loan. However, the purpose of the loan is more for personal matters. Personal loans are used for mostly for a holiday, home repairs, vehicle purchases or for buying a new household appliance. Or maybe you want to pay for a wedding or consolidate your debt. You can take a personal loan for any number of reasons. This type of loan involves the lender giving money to an individual and not a business.
Some of the main differences between business and personal loans are that personal loans are smaller and therefore generally do not require collateral. The main target of consideration is the individual and not the business. This can be both a good thing and a bad thing. If you have a good credit rating then you will not have a hard time getting a personal loan regardless of whether you have started your business or not. However, if you want to secure a business loan without having done any considerable business in the past, you may experience some trouble in the process. If your overall financials, time in business and revenue are all good, but your credit rating isn’t so good, this can also impact your approval chances. However, when it comes to underwriting for a personal loan, these factors may not carry as much weight.
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Personal loans do require good personal financials and credit rating – so do not expect any special treatment in relation to these requirements. The main idea here is to use your strengths to your advantage. Ask yourself, how I’m I more likely to secure a loan – as a business owner or as an individual?
Something Else You Should Know In Regards To Personal Loans
By securing a personal loan and diverting it to your business, you are inevitably mixing your business and personal financials. This may not cause many problems in the beginning but you may want to keep track of the two distinct financials carefully.
Whether you are in the market for a personal or business loan, LoanOne can help. LoanOne is one of the fastest growing financial companies in Australia. We offer both personal and business loans with competitive rates for a number of different industries. Our loans are fast, flexible and can be tailored to both your personal or business needs.