Additional cash for increasing your business growth is something that you cannot avoid, and there are many sources for it, let it be investors or external sources of finances like starting from business credit cards to loans. The most popular credit options of it is a small business loan or a personal loan, and it is mainly for a business where you don’t want to include an outside investor.
Both the loan types are different in their perspective, but you should decide that suits you the best depending upon your requirements. Also, both impacts or affects your credit score differently. Here are the things that will help you in finding out the one that suits you the best among the two.
Difference Between Small Business Loan & Personal Loan:
When you opt for a personal loan, your personal credit history will be taken into consideration that makes it easy when you don’t have a good business credit score. At the same time, you can opt for the small business loan when the situation is vice versa. A personal loan is something that you use for your personal purposes, whereas a small business loan is used for business requirements.
The Aspects Of The Personal Loan:
The loan amount that you get for a personal loan can be used for any purpose. Some financial providers will not allow you to use the money like that, so always get a clear picture from them before applying for one. People get personal loans for paying off their current debts. Whereas, some financial provider will restrict you from using it for educational expenses.
The Aspects Of The Business Loan:
The loan amount that you get for a business loan comes with certain restrictions on how you can use it. You can use it only for business-related purposes. The business-related purposes include things like updating the technology you use, purchasing your inventory or new equipment, paying off your employee salary or expansion of your business.
Can I Use Personal Loan For Business And Vice Versa?
Yes! You can use a personal loan for your business purpose, but that is not possible in case of a business you cannot use it for your personal purposes.
How Can I Get Approved For A Personal Or Small Business Loan?
The loan approval process of a personal loan and a small business loan is different. Getting qualified for a personal loan is very easy, whereas it has a lengthier process for a business loan in which paperwork and documentation should be done.
The Aspect For Debt Consolidation:
When you are in debts that you want to pay off, and you think about getting any of the two loans for it. You should understand both and choose the one with lower EMI to pay each month with flexible tenure to get benefited.
Getting Approved For Your Personal loans:
The approval process for a personal loan requires a good credit history and stable income. Once when your financial provider checks those things, then your loan approval will take very low time for processing and once processed, your loan will be approved, and funds will be sanctioned immediately. Whereas when you don’t have a good credit score, then you can offer a collateral to get the loan.
Getting Approved For A Small Business Loan:
When you have an excellent business credit history, then getting a small business loan might be easy. Also, you will want to show your financial provider that you have adequate annual revenue, and you can repay the loan without any financial trouble. Once these checks are over, your business plan will be checked to find out what you are going to use the loan amount for.
The financial provider will ask you to submit certain documents that will include proofs related to you, your business, income proofs, tax filings, and other legal documents. Once these documents are verified, your loan process will start, and after checking the criteria, your loan will be approved, and the loan amount will be sanctioned. Unlike a personal loan, with a business loan most of the time, you will be asked to offer a collateral for the loan.
Advantages Of A Small Business Loan:
Here are the advantages of a small business loan that you will want to know before you apply for one:
Keep Finances Separately:
It is always an excellent practice to keep business and personal finances separately. When you get a business loan, this is possible as the loan amount for a business loan can be only used for business purposes.
Increasing Your Business Credit Score:
When you take a business loan rather than a personal loan and repay it adequately, it will highly increase your business credit score, that will be a positive sign for your future endeavors.
Higher Loan Amount:
When you need higher loan amounts, then a business loan is the best option you can choose as it comes with a larger scale of the loan amount that is not possible in a personal loan.
Lower Interest Rates:
When compared to personal loans, a small business loan comes with lower interest rates and flexible tenure and repayment options that make it very special and unique when you are looking for business funds.
Advantages Of A Personal Loan:
Here are the advantages of a personal loan that you have to know before applying for one:
Easy Approval:
A personal loan is easy to apply a loan type that doesn’t require too much time on documentation and other procedures; thus, it is declared as the best advantage of a personal loan.
Quick Funding:
As the loan process for a personal loan is easy, you can expect the funds to be transferred to your account quickly that will make it easy for you.
No Collateral:
When you have a good credit score, then you will not be required to submit any collateral for your personal loan application. Only when you have the lower credit score, you will be asked for minimal collateral, that is not the same in case of a business loan.
Choosing Loan Type to Suit Your Needs:
When you doubt about the loan type you want to choose for retrieving your funds, you should do thorough research on your requirements, analyse it and find out the suitable one for you. Also, make sure to check the factors like your personal and business credit score, collateral offering, loan processing time and other essential aspects.
Once when you analyse these factors, you will automatically be able to filter out the options that will make you get a clear understanding of the loan type to choose. Only thorough research can help you with attaining a beneficial loan rather than a burden for your finances.