Many people, including some businesspersons, do not understand the difference between business and personal loans. As an entrepreneur, there are many reasons that can drive you to take a loan. Some of them include starting a business, boosting your marketing campaigns, purchasing equipment and expanding your business. However, deciding on the best loan to take is a challenging process, especially if you are taking a loan for the first time. It is advisable to learn the basics of both personal and business loans to help you make an informed decision. Each type has its advantages and disadvantages.
It is easier to apply for personal loans than business loans. When applying for a personal loan, you can approach an online lender, bank, or credit union. The lenders do not necessarily look at the performance of your business when approving a personal loan. They usually consider your salary and credit history. If you want to get a low-interest personal loan, you should improve your credit history. Some small business owners consider personal loans due to their easy applications and simplicity.
On the other hand, applying for a business loan is complicated, especially if your business is small. The application, processing, and approval of business loans take longer. When applying for a business loan, you must provide the lender with the right documentation. The lender must know the location of your business, how it operates and the amount of money it makes monthly or annually. Some of the requirements for applying for a business loan include the following:
- A concrete business plan
- Bank statements
- Business and personal tax returns
- The spending plan for the borrowed funds
- A comfort letter
You may also be required to provide collaterals to secure a business loan such as assets. One of the benefits of applying for business loans is that they have higher maximums than the personal loans. The lender can give you up to $5.5 million depending on the size of your business. However, the interest rates on business loans are usually higher. State regulations usually determine the interest rates. The loan installments affect the interest you pay.
Before deciding on the type of loan to take, you need to consider the amount of money you require. If you need a lot of money to expand your enterprise, a proper business loan is the best choice for you. However, if you need a loan urgently without multiple complexities, you should probably consider a personal loan. It is advisable to consult a financial advisor to help you decide on the best loan to take.
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