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Personal loan vs business loan : What to choose?

There are many reasons that may compel you to look for a loan as a small business owner. They include a sudden surge in sales that creates a need for extra cash flow, or just the need to expand your business.

You may also seek a loan to finance personal expenses such as buying a car or taking your family for a holiday.

Regardless of your reason for seeking a loan, there are many financing options that are available for you. Business and personal loans are perhaps the most popular. Here, we look at the pros and cons of each of them to help you make a wise choice when choosing a financing option.

Personal loans


It is much easier to obtain personal loans than business loans. All a lender needs to make a decision is your credit score. For instance,, an online lender, processes personal loan requests and, if successful, makes cash transfers to your account within 15 minutes of the application.

If you need a business loan it is not just your personal credit that will be examined but also your business plan, business credit and other business records. All these requirements make the process of obtaining a business loan time consuming.

There is no need for security. This is unlike business loans which require you to put up collateral before you are given the loan. Using pre-approved business loans responsibly helps in building its financial credibility.


Personal loans have lower lending limits and higher interest rates than business loans. You might, therefore, fail to obtain all the money that you or your business needs. Their high interest rates may also erode a significant portion of your profits.

Using a personal loan to finance your business activities denies your business the opportunity for building up its own credit. Thus as your business grows you may find yourself relying more on small, high interest personal loans.

Business Loans


Using business loans allows you to separate your personal and business finances. This is important for your business’ growth. There are also some business loans that have limited liability. Thus when it defaults, you are not required to personally repay the loan. Read here for more details.

Using business loans responsibly helps in building its financial credibility. Such credibility is crucial if you hope to have it grow through obtaining bigger loans and even products from suppliers on credit.


They can be difficult to obtain, especially if your business is just starting. Moreover, the process of obtaining them is lengthy and tedious, with a lot of paperwork involved. Unlike with personal loans, where you can easily apply online and the decision on whether or not to provide you with the funds taken in seconds, lenders of business loans require you to physically present the required paperwork.

If you are a busy person, this can be inconveniencing. The long waiting periods also mean that if you need the money to take advantage of urgent business opportunities, you may miss them out.

Deciding whether to go for a personal or business loan is not easy. They are many factors that you need to consider. Generally, if there is no urgency for the money, it is advisable to go for a business loan. You should limit personal loans to personal expenses such as taking your family for holidays.