Financial institutions offer the option to either take a business loan or a personal loan. At times, you can’t be sure of the loan to take up if you have many needs. There are different types of business-focused loans that you can take up or personal loans for your needs.
Do you have a business that you want to actualize? Why not consider getting a business loan? Do you have some personal needs that you need to cater to, why not consider a personal loan?
When you have an idea in mind, you need to do thorough research on the right financial institution to approach to ensure that you get a good loan with favorable interests and a repayment plan.
In this article, we will look at whether business loans or personal loans are best for your business.
1. Personal Loan
Personal loans are the best for individuals. In most cases, you find that they are unsecured loans based on the amount that you want. However, before you get any loan, the company must check your credit history to know whether you can pay back the loan on time.
It helps to tell the loaning company how reliable you are. They can also check your income to see whether your income can sustain you and also be enough to pay up the loan.
In some cases, personal loans tend to be secured in case you are taking a huge amount. Personal loans are more diverse than business loans that are based on businesses. The beauty of personal loans is that you can use them for your business or other personal reasons.
If you take a secured personal loan you will need to provide an asset in return. Unlike when taking an unsecured personal loan in which they will check your income and credit history.
Uses of a Personal Loan
The diversity of a personal loan makes you able to use it for different reasons.
a. Personal Needs
Personal loans give you the freedom to use the loan for any individual needs without having to satisfy a specific need. There is a lot of flexibility that comes with having a personal loan. You can even use it to pay for your education, health care, vacation, wedding, or any other personal need.
However, you can always consult with the loan officer or agent to learn the diversity of the loan. You just need to know the amount you need for your current uses and then get a personal loan for it.
b. Business Needs
You can also use a personal loan for your business. There is no restriction. Not unless the specific company wants more information on what you will use the funds for; for more transparency. However, even if you use the money for your business.
The business won’t be liable for paying. Instead, you as an individual will be liable to pay it back. Therefore, be careful about the kind of uses you use it for.
Advantages Of A Personal Loan
- A personal loan is easy to obtain
- Personal loans are unsecured
- Many lenders offer personal loans
- Personal loans are flexible and versatile
- Easier and faster approval rate
Disadvantages Of Personal Loans
- Limited amount
- They are tax-deductible
- You can’t build business credit with it.
- Can destruct your credit history
2. Business Loans
Business loans are the ones meant to finance a business. This can be in terms of operational costs, business projects, business expansion, and other projects. Sometimes, business loans come with a restriction on how you can use the money. Therefore, when you get a loan strive to use it for business purposes only.
When you generate profit or extra revenue, you will be able to finance the loan repayment. To get a business loan you will need to provide documents that show business existence, the business turnover, good cash flow of the business, healthy credit history, and evidence of existence for at least 6 months.
Also, try and take up a loan within the limit to ensure you don’t strain much when you take up the loan.
Uses of a Business Loan
a. Business Needs
In most cases, these loans need to be used for business needs. Therefore, you need to restrict the loan used to the business solely.
Therefore, you can use it to boost your business, buy new equipment, purchase stock, pay rent for your business, human resources, and marketing.
It will help for the proper growth of your business. If you use the money for other uses it can lead to a bad penalty. You can use it for business financing or entrepreneurship.
b. SME Growth and Startups
You can also take up a business loan to boost your startup, small or medium-sized business. Therefore, even if you are still starting, you can talk with the loan officer so that they can find the right kind of loan for you.
The SME microloan can go a long way in the prosperity of your business. However, keep track and use the money for the right purpose.
Advantages of Business Loan
- It lets separate the personal and business liability in terms of payment.
- You can get a large amount of loan for your business.
- It will help to build a business credit record.
- It is tax-deductible.
Disadvantages of Business Loans
- Not all companies can qualify for a business loan.
- Most are secured loans.
- It has a lengthy application process.
The personal and business loan rates tend to be almost the same. It is important to keep in mind that the interest and fees charged by the lenders can affect the borrowing. Therefore, do thorough research to ensure you get the best rates.
When taking up a loan remember that the size of your business matters, your trading history, the urgency of the money, and whether the loan is secured or unsecured. All the best as you take up a business or personal loan from a credible money lending company.