Securing funding for your business is crucial to support its sustainable growth. Loans are one of the more conventional and common ways for entrepreneurs to seek injections of working capital into their business.
But which is better for your company: personal loans vs business loans? What are the key differences, and which is right for you?
Personal Loans vs Business Loans
There are several key differences between loans for personal use and loans for business use.
1. Purpose
Most obviously, business loans are specifically intended for use in business, whilst personal loans can be used for any personal expenses.
2. Loan Amounts
Business loans often allow for higher borrowing amounts. For example, at ScotPac, we provide business loans of up to $200,000. On the other hand, personal loans are typically smaller in size.
3. Application Process
While business loans can be more complex as they often involve the provision of business plans and financial documents, personal loans are more contingent on one’s personal finances and credit scores.
4. Interest Rate
In general, business loans often have more favourable interest rates compared to personal loans. This is because they’re generally viewed as less risky when backed by business assets and/or cash flow.
5. Repayment Terms
Business loans generally come with longer repayment terms whilst personal loans tend to have shorter repayment timeframes.
6. Credit Building
Business loans can be used to help a company build its credit history, whereas personal loans in some circumstances affect personal credit scores.
7. Personal Liability
Personal loans will leave the individual borrowing the money personally liable in the event of a default on the loan, whereas this is not necessarily the case with business loans.
8. Tax Deductibility
Interest on business loans is typically tax-deductible as it is a legitimate business expense whereas interest on personal loans even used for business purposes is not always eligible to be tax deductible.
9. Flexibility
As with Point #1, business loans are strictly for business-related activity and the stated intended use of the funds is often required during the application process. With personal loans, there are far fewer restrictions on how the money can be spent.
10. Additional Support and Services
Many lenders offer business loans alongside complementary services. This can range from business checking accounts, if it is a bank, or financial advisory services, as is the case with ScotPac. This sort of additional support and service offering is not typically available with personal loans.
Should You Seek Personal Loans for Business?
The lending specialists here at ScotPac generally advise our clients to seek business loans that can be tailored to your needs over personal business loans, i.e., personal loans that are then used for business purposes.
There are a few reasons why business loans tend to be more suitable for funding your organisational operations and growth.
For one thing, there is a clear delineation between your personal and business finances. This can be crucial for legal, tax, and personal asset purposes. As mentioned above, your interest rate payments are tax deductible, it does not affect your personal credit history, and neither you nor your personal assets are liable in the event of a default.
It also simplifies accounting and streamlines financial management of your company.
But there is another reason as well. Business loans are specialised and customisable financial solutions that can be tailored to suit your specific business needs and goals. If you know how and where you need to use the working capital, for example to invest in new equipment, purchase replacement inventory, or fund the relocation to a new worksite, your business loan product can be designed accordingly.
While personal loans have a lot of flexibility in the way in which you can use the funds, they lack the specific flexibility of customisation.
At ScotPac, we sit with our clients and take the time to comprehensively understand their business and industry. We outline the specific objectives and help to chart a path forward to fuel that success, whether through a custom business loan or another financial service.
By approaching our clients as partners and not transactions, we can ensure that they are receiving the best financial solution for their needs.
How much can you borrow with a business loan?
ScotPac offers unsecured business loans of up to $100,000. That means you won’t need to put up collateral, in other words, property or other assets as security, to be eligible for the loan. Strong financials and cash flow projections may be enough to qualify you for one of our business loans.
If your business is looking for loans in excess of $100,000, we can provide that as well through our secured business loan offerings. We recommend you reach out to our team today to find out more about secured business loan amounts.
How do you apply for a business loan?
We use online application system to make the entire process as easy, hassle-free and quick as possible.
The online application takes less than five minutes to complete. Then it is a simple process of uploading recent bank statements and photo ID of borrowers to our secure portal.
Once completed, we will review the application. From the time your loan request is approved, you can have access to funds in as little as 24 hours.
Explore the Right Business Loans for Your with ScotPac
ScotPac is New Zealand and Australia’s most trusted and largest non-bank business lender. Quick, easy access to funding, flexible repayment options, and no industry restrictions make funding your business with us easier than ever.
While personal loans might seem like a convenient option, business loans offer clear advantages for funding your company’s growth and operations. So, whether you want to know more about the difference between personal and business loans, would like to find out more about how much your business can borrow, or would just like a free, no-obligation initial consultation with one of our specialists, contact the ScotPac team today.
