Wondering if your fledgling business could use a loan to cover some expenses and get things moving? Here are the key things you should know about using a personal loan vs. a business loan for your professional endeavors:
- Less effort: A personal loan application will sometimes require fewer documentation than a business loan application, due to the less rigorous risk-determination process. For example, you won’t need to submit your company’s business credit and business plan for review—but you still may need to submit your business tax returns or a profit and loss statement.
- Different (and less) collateral: For a secured personal loan, your personal possessions may be used as guaranteed collateral should you default. On the other hand, with a business loan, the businesses assets are used as collateral. An unsecured personal loan is sometimes possible, and will not require any collateral.
- Lower interest rates: This is sometimes true for personal loans, and can make the option more affordable, especially in comparison to certain alternative lenders offering short-term and other non-traditional products carrying higher interest rates.
All that said, a personal loan is usually less desirable than a business loan to pay for business-related expenses. That’s because lenders don’t typically love to look at returns that consolidate both business and personal expenses, rather than clearly delineating the two. The extra effort for the lender means a bit more scrutiny and a lower likelihood of approval. Plus, it’s a good rule of thumb to keep business and personal assets separate, anyhow.
If you can’t qualify for a business loan, don’t feel discouraged. A personal loan can still be an attractive option to consider for those whose company is in its very early stages, and simply does not have the momentum, capital, and credit history to obtain a business loan—yet!
Sound like you? At Laurel Road, we’re always here to chat about helping you reach your goals with a low interest personal loan.