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Not all loans were created equal. When you're looking to start a business, one of the first things you will need is financing. Often this will come in the form of a loan. Many people will take out personal loans for the sake of ease, but we're here to run you through both so you can make the best decision for your business-to-be!
A personal loan is a small loan with a considerably shorter term than a mortgage, and is often borrowed for to purchase a car or asset, consolidate debt, or renovate a home, or something similar. A personal loan can be acquired more quickly than a business loan, and is assessed only on the individual's assets and credit rating.
A business loan is a sum of money borrowed with the intent of funding the starting of a business. Business loans will often be a larger sum than personal loans, but take longer to acquire. This is because, to acquire a business loan, lenders must see a business plan, and assess the perceived ability of the borrower to successfully carry out the business. Before the business begins to turn a profit, the lender will assess the borrower's ability to pay back the loan personally.
A personal loan can be acquired quickly and you are likely to only require some information on your credit rating and income. You will also save money on fees and interest rates that come with the territory of a business loan. If you wish to take out additional loans in the future, the administration procedure is likely to be quite slow, as you will then have to go through the process of proving your businesses success, but it is possible.
Using a personal loan can often be easier and more straightforward if this is your first business, as you will not have any records of previous businesses to show your lender. If you are borrowing less than $20 000, a personal loan will not be too difficult to secure with minimal details.
If you choose to start out with a personal loan, your future has the potential to get complicated, should things not go well. Using a personal loan to start your business can mean you may be held personally liable for any problems your business may face in its lifetime. It is best to consider this option and decide whether you would prefer to keep the business separate.
In terms of tax, you may end up being able to claim more deductibles if you acquire a business loan, as you will have your business and personal taxes separate. For example, if you use a business loan, you will be able to claim back any interest expenses from purchasing goods.
Finally, if you are entering into a business with a partner or two, it is recommended that you use a business loan. This will mean that all partners are accountable for the loan through the duration of the partnership, meaning the risk is shared. This usually helps maintain a level playing field throughout the duration of the partnership.
At the end of the day, it's up to you which loan you choose, but hopefully these tips will help you to make the best decision for you!
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