Personal Vs. Business Loan: Differences And How To Choose One

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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Do you need funding for your small business? Whether to cover a cash flow gap or expand operations, you’re likely considering a loan to meet your capital needs. 

Both personal and business loans are an option, but how do you decide which is best? And should you use one over the other to fund your small business? Here’s a breakdown of how each works, how they differ and how to decide which is best for your small business. 

Find The Best Loan For Your Small Business

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

What are Personal Loans?

A personal loan is a fixed-rate debt product that’s payable in equal monthly installments. Loan proceeds are dispersed in a lump sum, and you’re free to use the funds however you see fit. Many individuals consolidate high-interest debt, make costly home repairs or improvements, cover unexpected financial emergencies or pay for major events, like weddings, funerals and other celebrations. Some also use the funds to start a business. 

Most traditional banks, credit unions and online lenders offer personal loans. You’ll generally qualify for the most competitive interest rates if you have good or excellent credit. However, some online lenders offer reasonable rates to borrowers with lower credit scores. 

What are Business Loans?

A business loan works like a personal loan but caters to small business owners. Furthermore, the funds should be used to cover operating expenses, fill cash flow gaps and foster expansion.

These debt products are also available through banks, credit unions and online lenders. In addition, you can also apply for a small business loan through the U.S. Small Business Administration (SBA). 

Can You Use a Personal Loan for Your Business?

Yes. However, a business loan may be a better option. Here’s how to choose between the two options. 

When It Makes Sense to Use a Personal Loan for Your Business

It could be more sensible to take out a personal loan for your business in these circumstances: 

  • You need a higher loan amount than a lender is willing to approve you for with a business loan. 
  • You don’t have a written business plan. Some lenders may request it, including financial statements, bank statements and tax returns. If you don’t have this information handy, getting approved for a business loan can be challenging.
  • You prefer a loan that doesn’t require collateral (assuming a secured business loan is your only option). 
  • Your personal credit history will qualify you for the best interest rates.
Find The Best Loan For Your Small Business

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

When It Doesn’t Make Sense to Use a Personal Loan for Your Business

A business loan could be the better choice if any of the following apply: 

  • You found a personal loan with no origination fee and a more competitive interest rate, but the lender does not allow the funds to be used for business expenditures. 
  • You have a solid business plan and good or excellent credit. 
  • You need a loan of over $100,000 and plan to apply for an SBA loan product.

Personal Vs. Business Loan: Which One Is Right for Your Business?

Ultimately, it’s a personal decision. Both can help meet funding needs, but you’ll need to evaluate loan offers and borrowing costs to determine which is most sensible for your financial situation. It’s equally important to read the fine print to ensure the loan proceeds can be used for the intended purpose to avoid issues later on down the line. 

Where To Get a Business Loan

Several banks, credit unions and online lenders offer personal loan products. But not all lenders are the same, and it can be challenging to find one that is reputable and offers competitive rates. 

Fortunately, online platforms like Biz2Credit take the guesswork out of finding suitable financing options connecting business owners with business loans that are a good fit. Since 2007, over 200,000 companies have used Biz2Credit to secure more than $7 billion in small business loans. 

Biz2credit features three flexible funding solutions for small businesses: 

  • Working Capital Loan: It is available to small businesses that have been established for at least 6 months with annual revenues of more than $250,000. You should also have a personal credit score of 575 or above. Loan amounts range from $25,000 to over $2 million, and approvals are often issued in just 24 hours. 
  • Term Loan: This loan product is reserved for small business owners with a credit score of at least 660, over $250,000 in annual earnings and at least 18 months of business experience. You could get approved for between $25,000 and $500,000 and funded in just 72 hours. Plus, interest rates start at 7.99 percent, making term loans an affordable option. 
  • Commercial Real Estate (CRE) Loan: Use a CRE loan to capitalize on opportunities to grow your business, fund a renovation project, refinance a current business loan or acquire a new business. Loans from $250,000 to $6 million are available with interest rates as low as 10 percent. You could qualify if you already own a commercial property, have been in business for at least 18 months, have a credit score of 660 or higher and generate annual revenues of more than $250,000.

It only takes four minutes to apply, and you can get a lending decision in just 24 hours. Even better, some business owners receive between $25,000 and $6 million in as soon as 72 hours. 

Here’s how the process works: 

  • Step 1: Submit the funding application to get started. 
  • Step 2: Review business financing offers. 
  • Step 3: Select an offer that fits your company’s needs. 
  • Step 4: Receive the loan proceeds in your bank account.

It’s really that simple! To explore your options, get pre-qualified by submitting the form on the website.


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