Personal Loan or Business Loan?

  • A common question which usually strikes an entrepreneur’s mind is whether to choose a personal loan or business loan.
  • A sudden spike in the sales might have created a need for additional cash flow, however, a good loan might be the choice of many businessmen’s but some still choose personal loans because of its simplicity, less paperwork, and easy application process. But as with any business decision, there are different pros and cons of both methods.

Difference between Business Loan and Personal Loan

Basis Business loan Personal loan
APR (Annual Percentage Rate) Many business lenders charge different interest charger for their loan, where on the other hand some business lender charges monthly rates instead of annual percentage interest rates. In a personal loan, both fixed and variable interest rates can be offered. Some lenders might charge stating the annual percentage rate as lower as 3.99% or even lower.
Loan Amount The loan amount for business can be much higher than a personal loan. The Personal loan amount will be lower than the business loan.
Eligibility For business loans, one should be more active in business finance than personal finance. For Personal loan one must have a good credit score or a financial institution can evaluate your income information and debt to income ratio
Terms In this type of loan, one can get both short term and long term loan. In a personal loan, one can get between 1 to 7 years not more than that.
Application process For business loans, one is required to submit their business plan as well as accounting details with their application process. The application process can be easily completed online in a few minutes.
The Usage Restrictions A business loan can be used in any business process like equipment purchase etc. The personal loan amount can be used in any legitimate way or one can apply directly for usage like buying a car, etc.

Business loan

Benefits of business loan

  1. The business loan can help in separating the business by improving the opportunity in the future to get a loan by securing good business credit which is one of the important things while your business grows.
  2. If one will be generating a loan through the business it will deduct the owner’s personal liability towards his business.
  3. Moreover, if one will be responsible for using a loan then it will improve your financial credibility of the company which will further open great opportunities. You can also choose between business loans or mortgage loans.

Demerits of business loan

  1. Generating loan amount through a business loan for extending your business can be difficult.
  2. If the business of entrepreneur or if one has less than business good credit required by the financial institution.
  3. The application and approval process of a business loan can be lengthy and tedious.
  4. Depending on your situation you might need to give collateral or personal guarantee to get a business loan.


  • Personal loans details that are related to most of the people are of smaller value.
  • This can thus be an advantage or a disadvantage depending on the personal circumstances.
  • Business loans can typically be of much higher value than personal loans unless the borrower takes out a sizable mortgage. While some of the small business loans at the lower value end and are similar in many ways.


The process for a business loan from a bank is thus quite a long and detailed process with an extensive application as and when they are compared with personal loans.


  • It is necessary to bring a financial statement for the past three years
    • In addition to the other documents to get a business loan.
  • The vast majority of business loans do not require a guarantor to approve the ability of a client to repay the credit.

Though in case the business takes out a loan, its owner thus signs the loan and serves as its guarantor.

Personal Loan

Benefits of personal loan

  1. Personal loans can easily be obtained through the application process.
  2. For obtaining personal loans the financial institution will assess your credit score and your personal information like your employment information, income information, etc.
  3. No requirement of any collateral security.
  4. Any person without any security just by awarding his personal details can get a personal loan.
  5. There is no restriction by the institution on the usage of loan amount one can use it anyway.
  6. Therefore, the application process for a personal loan for a business is much easier than a business loan.

Demerits of personal loan

  1. One of the major downsides of the personal loan provides the limit which is lower in comparison to which interest rate is higher.
  2. There is an absolute possibility that one might not get the amount for his business
  3. Moreover, any person who is generating a personal loan for a business is denying his business opportunity to get a business loan in the future.
  4. The time period for the personal loan cannot be extended for more than 7 years.