The difference between private loans and small business loans

Private loans are verified using your personal loan history. If you have a good loan, this will often make it easier for you to get a small business loan from both a private and a business loan.

For small businesses, both private loans and loans come in the form of loans and car loans to credit lines and loans. Generally, private loans are intended for private purchases, while business loans are intended to support business-related purchases.

Personal loans

What can a private loan be used for?

Private loans can usually be used for anything.

Lenders may ask for a reason for your application, but in most cases, they do not agree to spend your loan money on something special when taking out a personal loan. Some lenders have restrictions on how their personal loans can be used, so be sure to read the good newsletter before applying for a loan.

Benefits of Personal Loans

Easy approval – You may have an easier time getting approved for a personal loan, especially if you have not been in business for a long time.

Immediate financial support – Private loans require fewer paperwork and documents, so you will get your money faster because the approval process is shorter.

There is no guarantee – Excellent personal loans are unsafe, which means you do not have to make any guarantees to get a loan. Many business owners, on the other hand, want to secure a loan, especially for assets with reasonable interest rates.

Small business loans

What can a business loan do?

Business loans may come with additional restrictions on what they can use, such as how to use the money for commercial purposes. These may include updating technology and equipment, purchasing new inventory, paying rent in a business, hiring new employees, marketing your business, and even daily business expenses.

Finally, your business loan should be used for additional income-generating purchases – ideally, to offset interest costs. Some lenders allow you to use business loans to repay or repay existing debt.

Benefits of Small Business Loans

Financial isolation – It is very important to distinguish between your personal and business finances, and taking out a business loan will help you do this. This not only saves you a lot of time during the tax year, but can also save you a lot of money in the form of tax deductions.

Limit your liability – Depending on your legal structure and the type of business loan you have taken, the default or if you are unable to repay, your liability on your personal loan may be more limited.

Building Business Credit – Borrowing a business loan instead of a personal loan will help you build your business loan and show future lenders that you can repay your loan responsibly.

Large loan amounts – If you want a big loan, you want to consider business loans. Private loans do not exceed $ 50,000, and even that amount can be difficult to qualify.

Low interest rates – If you qualify for the best business loans, you will get the lowest interest rate on a private loan. According to Nav, interest rates for traditional lenders range from 2% to 13% and private interest rates from 6% to 36%.

Can I use a personal loan for business and vice versa?

You can usually use a personal loan to cover any business expenses. Remember that it is still your responsibility to pay that loan – not your business – and it can be even harder to identify your finances this way.

On the other hand, some business loans may limit your use of non-commercial funds. Others are less restrictive and use your business loan to make it easier for you to pay yourself in the form of a salary.

How to be justified

The approval process is slightly different for private loans and small business loans. In most cases, it will be easier to qualify for a personal loan, and the application process for a small business loan will require a longer and more extensive paper and documentation.

Approval for personal loans

Approval of personal loans usually requires good credit and a stable income. You must show that you have a low enough debt and income ratio to support the loan burden you are applying for. If you do not have good credit, look for a safe loan that requires a guarantee form.

Private loans are smaller than small business loans – private loans tend to come in at $ 1,000 to $ 50,000. On traditional private loans, lending is usually two to seven years.

Approval for small business loans

To qualify for a small business loan, you need excellent credit, and lenders may want to see both personal and business credit results. You also need to be able to show enough annual income, and most lenders want to see if you have been in business for a long time. There are some online lenders who offer expensive business loans to people who have not been in business for a long time or who do not have strong business credit.

Lenders need more paperwork for your small business loans, including greater profitability and cash flow. You need to know exactly what the loan is, and some lenders will also ask you to come up with a business plan. Finally, you will need to provide information about any required business licenses and licenses regarding your legal structure and documents.

If you are eligible for a small business loan, it may be easier to approve larger loans than private loans. Many institutions offer small business loans ranging from $ 5,000 to $ 500,000, and some offer more than $ 1 million in loans. Loan terms vary widely and can range from six months to 25 years.

Choose the one that is right for you

Banks, credit unions, and online lenders all offer private loans and business loans, and small business administration provides government-sponsored small business loans. Deciding between personal and small business loans and choosing which lenders to borrow goes down to your business history, your credit and your business goals.

If you have an established business and want the lowest rates …

Standard commercial loans from banks and credit unions typically offer the lowest interest rates. These are appropriate, but the application process is lengthy and not easy to approve. You must have established business and excellent personal and business credit, and in most cases you must also have sufficient assets to guarantee.

If you have a new or risky business and want the lowest rates…

SBA loans are a great option. These are bank loans but government-guaranteed loans. In other words, if you do not get a loan, the government will agree to repay 85% of the loan.

As a result, unsecured start-ups and risky businesses may be eligible for SBA loans with a bank or credit union, and you do not normally need a guarantee. You will still find the lowest prices on the market. Remember, this process can be long and can take weeks or even months.

If you have a new business and good credit…

People who are just starting out and have not been in business to qualify for a business loan or SBA loan may want to consider private loans. These can be used for business purposes, and as long as you have personal credit, you will still be eligible for relatively low rates. You may also want to fund your startup with a 0% introductory APR credit card, but make sure you pay before the promotion expires.

If you want money fast…

Online lenders tend to withdraw money faster than traditional banks, and some offer small business loans. Some online lenders are quick to fund private loans by providing approval on the same day and the next day. When it comes to online lenders, pay close attention to prices and terms. They can be fast, but many charge very high interest rates, so the time you spend on them may not be worth it.

If you have bad credit…

Online lenders and alternative lenders often lend to people with bad credit. However, to prevent the risk of borrowing from someone with bad credit, these lenders charge incredibly high interest rates, and may even require a guarantee on it. Options such as salary loans and ownership loans are the worst culprits and the most expensive.

Small business loans give your business the opportunity to support growth at low rates and favorable terms. But do not be discouraged if you do not receive a commercial loan from a traditional bank. There are many options, from personal loans to SBA loans and online lenders. Make sure you do your research as much as possible and choose low-cost financial options.