Personal Loan vs. Small Business Loan
There is a fundamental difference in the way businesses borrow money for their expenses and how consumers borrow for individual purposes.
Despite the fact that there is a range of similar purchases, the terms vary greatly in these two types of borrowers.
Comparing personal loan vs. small business loan it is important to highlight that it is only the borrower who matters.
All the features, terms, rates and monthly payments will depend on the consumer.
So, before you take any of these credits, learn specific points and other details for the most convenient and beneficial choice.
Similarities and Differences between Personal and Business Loans
Once you are ready to take the loan, though have multiple options, consider the differential features of both to select the best one.
Mind such peculiarities as the following:
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– Terms. Interest rates of a business loan are commonly higher, while the terms are shorter.
Besides, this can depend on the time of the business existence, as well as collateral available for the loan.
In case a small business loan is secured exceptionally by inventory, the interest rate will be higher and the term – shorter.
On the other hand, the duration of a personal loan and its rate is based on the credit history of the customer and his/her score.
– Collateral. Both business and personal loans require collateral to secure the loan.
Such collateral may include investments, real estate and other types for both credits.
Besides, equipment, fixtures, inventory and furniture may serve as collateral for a business loan.
In addition, personal assets may be required for this credit type.
– Documentation. While the credit report, tax returns and pay stubs are only documents necessary for a personal loan, it is also necessary to bring a financial statement for the past three years in addition to other documents to get a business loan.
Moreover, copies of contracts, tax returns, consumers and suppliers may be required, significantly exceeding the number of papers needed for private loans.
– Guarantor. The vast majority of consumer loans do not require a guarantor to approve an ability of a client to repay credit.
Though, in case business takes out a loan, its owner signs the loan and serves its guarantor.
If this business fails to pay back the loan, the owner is the one to repay the credit.
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After such a detailed comparison of personal loan vs. small business loan, it is obvious that a personal loan is easier to receive, safer and less demanding, though a small business loan is more beneficial for those in need of a big sum of money for a short period of time.