• Accel Business Funding

What’s the Difference Between Business Loans and Personal Loans?

When looking for financing, small business owners will likely consider taking out a loan. There are two common types of loans, personal loans and business loans. Generally, a business loan has a more extensive application process than a personal loan would because there are more required documents and qualifications to be met. In this article, we explain the differences between a personal loan and a business loan and why you might consider either financing option for your business.

Personal Loan

A personal loan is a loan that is specifically issued to you as an individual, and not to any entity associated with you. As such, all qualifications for a personal loan are based on your personal credit history and personal income. Typically, a personal loan has a maximum amount of $50,000 and a term length from 1-5 years.

Personal loans can be used to fund your business if you declare that to be your intention during the application process. However, if you fail to pay back a personal loan, then your personal assets will be seized rather than your business assets. This can be a scary prospect to borrowers looking to fund a new business.

Business Loan

Business loans are obtained by business owners specifically to fund your business. Any kind of business activity can be funded with business loans: opening a new location, financing inventory, renovation and so forth. There are many different types of business loans available for your funding needs.

Applying for a business loan will require numerous financial documents, a detailed financial plan on how your business intends to pay back the loan, and your business and personal credit details. The application process for business loans is more extensive than personal loans because the loan amount is much higher and subsequently, so is the risk for the lender. With an SBA loan, for example, the maximum business loan amount is $5.5 million, although the average business loan amount is around $50,000.

Why Personal Loans?

  • Much easier to obtain

  • Often unsecured, so collateral assets are not needed

  • Better for startups and new businesses that are not at least 3 months old

  • You have a high personal credit score

  • You do not mind possibly losing personal assets

  • More likely to get funding quickly (Not all business loans are fast)

  • Due to various circumstances, it is less expensive.

  • Better for short-term one-time issues

Why Business Loans?

The biggest reason to choose a business loan is that you want to separate your personal finances from your business finances as soon as possible. There are legal and tax-based consequences if your two finances are too interconnected, which can both be expensive and dangerous. Also, if you plan on taking on further business loans, a business bank account will often be mandatory.

Other reasons would include:

  • You want to build up your business credit for future opportunities and financing

  • You do not want to risk losing your personal assets, and want a loan without a personal guarantee

  • You can qualify easily – good business credit, business is established with steady cash flow, and have the necessary assets to offer as collateral

  • You need a larger loan of around $50,000 or more

  • You do not want to have a term loan, which is what most personal loans are structured as

  • You want to build a relationship with a lender for future possibilities

Accel Business Funding has many different funding options for all businesses and funded many businesses more than $380million. When banks say NO, we say YES to funding in 24hrs!


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California's Loans made or arranged pursuant to a California Finance Lenders Law license

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