When you are a small business owner in need of finance, you will most likely turn to a loan as a source of funding, whether that is a personal loan or a business loan. There are several factors to consider when choosing which one is right for your company’s needs.
Personal finance should be used for personal needs, the same as how business finance should be used for any business needs. There are several different types of business loans which can be used for almost anything, from helping to grow your staff, investing or expanding your company. Personal loans are often used for renovations, student finances or large bills. Although business and personal finance are similar, the two should always be kept separate.
The risk in personal finance is slightly different to business finance. For example, if you were to start a business using your own personal finance or loan and the business was unsuccessful, you would be exposing your personal assets on behalf of the business.
There is little difference between a personal and business loan, apart from the rates you are offered and the eligibility requirements which can depend on the lender. In order to qualify for a business loan, you must already own a business or be in the process of starting one. As well as this, lenders will often have additional eligibility requirements to qualify for the loan which takes into account your business’ history. Personal loans will often have less eligibility requirements than business loans, as they will usually only take into account your credit history and your personal income in order to offer a rate. Whereas business loan lenders can often assess your personal credit history as well as your business’ finances in order to make a judgement on your application.
Although it may seem like business loans are slightly more complex, the application process can be equally as simple. Business loans can sometimes offer SMEs better rates with more flexible repayment periods, making them the best choice for businesses.
If you have a poor credit history, your loan or finance applications can often be impacted as a result. This can be frustrating for new businesses, but the result very much depends on individual circumstances, so it shouldn’t stop you from applying for a business loan. If you are a new business without a business account or with poor credit, lenders may look at your personal credit history to see how much of a risk you could pose to the lender.