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Differentiating Between a Business Loan and a Personal Loan: Which One Do You Need?


A business loan is a variable amount of money which is borrowed from a financial institution to set up or finance a business, while a personal loan is one that is given out to individuals based on their personal income, credit score, etc.

There are multiple differences between the two, and some of them can be confusing. Discussing the key differences between the two types of loans should make things clearer, so that one can apply for the kind of loan that they need specifically.

A Personal Loan Makes You Personally Liable

Unlike a business loan, where the entire business and its assets bear the liability for not paying out the loan in time, a personal loan holds the individual taking the personal loan liable for maintaining all terms and clauses of the loan agreement.

There is Generally a Big Difference in the Maximum Loan Amount

UK loans taken personally are usually a lot limited in the maximum amount the lender will allow, but it mostly depends on the loaning company. For example, while most lenders restrict short-term personal loans to roughly £2,000 - £3000 at most, some secured financing options are given for personal reasons can go as high up as £10,000.

These are the type of loans which can also be used as small business investments, but there can be restrictions to it. The lender can restrict the funds from being used for business purposes, but once again, it varies from lender to lender. Before you take such a step, it’s best to verify the facts from your lender first.

You Can Get Personal Loans Much Faster than a Business Loan

It is possible to be qualified and given a personal loan in a matter of minutes over an online platform, while business loans can take a lot longer to get approved and show up in the business’s account. This is the primary reason why small business owners often take the route of getting small, short-term personal loans for small expenses.

The speed of business loan approvals and transfers is improving, but there’s still a big difference between the speed in which personal loans are approved and the pace at which business loans are processed.

Personal Loans Can Become Significantly More Expensive

It has been a long standing problem in the UK, and although the government has taken measures to curb some of the outrageous interest rates charged, short-term loans can still become very expensive, especially when they are not paid back in time.

If you choose to go for a personal loan, it’s best to pay it back as soon as possible, because with each month of extension, the interests and the total payable amount becomes a lot more than what you may have expected initially.

Business loans are generally long-term loans, so the expense may not be as much due to the structure of the loans themselves. However, missing a payment on business loans can make things very expensive, as well as damaging your business credit.


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