Business Loan vs. Personal Loan: What’s the Difference?

Business Loan vs. Personal Loan: What's the Difference?

Personal loans and business loans are two very distinct types of loans, with complex terms and workings. These loans are used for very different purposes and are created completely with different goals in mind. If you are looking to secure a loan for your business expenses and wondering which option might be right for it, it is vital to be aware of their differences to make the right choice. To facilitate that, in this article, we examine both these types of loans and highlight their distinctions.


What Is A Business Loan

Before learning the differences between personal loans and business loans, it is essential to understand what these loans are.

A business loan, as the name suggests, is a type of loan which is crafted especially for businesses. These loans can be used for business expenditures only, and are often customizable to suit the unique needs of different businesses. A business loan if often granted by a specific body known as the Small Business Administration.

The repayment terms of the business loan, the rate of interest imposed, and the liability terms are targeted towards businesses only. In fact, a business loan is not provided to an individual, but to a business organization. These loans are secured in nature which means that they require collateral (which in most cases is the business or its assets).

In order to secure a business loan, the business’s credit history is assessed, and poor credit history of the business, or lack of ample credit background can cause obstacles in acquiring the loan. The loan amount limit is also quite high to suit business needs and meet expenses.


What Is A Personal Loan

A personal loan is one which any individual with a credit history can seek for a variety of purposes and expenses including business-related expenditures. To get a personal loan, you need to only fulfill a set of basic criteria such as minimum credit score, income stability, etc. There are very rarely (if at all) any special requirements to qualify for a personal loan.

The term for which a personal loan is provided is typically much shorter. The rate of interest at which a person gets the loan approved can vary depending upon a range of factors such as the amount requested, the borrower’s credit history, and more. Usually people with poor credit scores are provided the loan at a much higher interest rate.

A personal loan is usually an unsecured loan, which means that there is no collateral that the borrower risks losing in case they are unable to pay back the loan amount. Moreover, the amount limit for a personal loan can vary, but is usually much less as compared to specific types of loans which are designed for particular usages.


Differences Between Personal Loans And Business Loans

Personal loans and business loans can be understood as completely different types of loans irrespective of the fact that a personal loan can be utilized for business expenses as well. Although business owners can look for a personal loan to use for business usage, a business loan is a much better option. Some of the key differences which highlight this include the following.


Loan Term

A personal loan is granted for a short duration, usually between three years to seven years, depending on various factors such as the loan amount, purpose, interest rate, credit score of the borrower and more. This means that if you get a personal loan for a business expense, you need to repay it back within this short duration.

A business loan on the other hand is granted for a much longer term that can go up to 25 years. This means that the business has much longer to repay it back, which is critical as businesses can experience ups and downs every now and then, impacting the ability to repay the loan in a short duration.


Who Gets The Loan

A personal loan is given to an individual who bears the responsibility for repaying the loan back. Whether you take the loan for business expenses or others, you will be liable to pay it back. As such, the borrower’s credit history and other details are inspected by the lending authority to assess their creditworthiness.

On the contrary, a business loan is given to a business entity itself. This means that the business is liable to pay back the debt, and not an individual. To assess the qualifications or eligibility for the loan, the business’s credit history and other details are inspected, and not any one person’s. The qualification criteria are much different and stringent as well as compared to a personal loan.


Approval Time

It is well-known that a personal loan is very quickly processed and approved. It only take a couple of days, usually only one day from the application submission to the loan approval and even disbursement. For immediate or urgent expenses, this is a major plus.

A business loan, however, can take a few days or even weeks to get processed and approved by the lenders. They need to assess a lot of things which can take time, therefore, businesses need to plan for the loan much in advance than their requirement for the loan.


Loan Amount

A personal loan is granted for smaller amounts, usually going up to a maximum sum of $40,000. The maximum amounts can vary from one lender to another. This amount however can be used as the borrower likes without any particular restrictions.

A business loan, contrarily is granted for much higher amounts, going up to $2 million to help meet business expenses. This amount can be used only for business expenses, and lenders may require the business to disclose the exact purpose as well.



Personal loans and business loans are distinct types of loans which can be used for various purposes. Although both can be used for business expenses, it is essential for borrowers to conduct some research and assess which option is ideally suited for them for particular purposes. This will ensure that they make the most suitable and financially sound decisions.