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What is better for your startup: a personal loan or a business loan?

Many people and businesses find that a loan is a viable option to obtain immediate cash. But there are many types of loans that can be used.

You need to assess your financial situation to determine which type of loan you should get.

Business loans are for capital to grow your business, while personal loan is for almost all purposes. How do you distinguish between them? How can you tell which type of loan is right to meet your current needs?

We will help you make an informed decision.

This is everything you need to know to decide the best loan option for your startup.

Sometimes it is difficult for a new business to obtain funding from traditional lenders.

Business loans often have requirements that you, as a startup business, may be unable to meet. Personal loans may have restrictions regarding whether you can use them for business purpose. It can be confusing to decide which option to choose.

Don’t worry. We can help you determine whether a personal loan or a business loan are right for your startup.

Small business loan

The eligibility criteria are the most important aspect of start-ups and loans. As with all loans, business loans can be granted based upon affordability and credit checks. Start-up businesses face a problem because they do not have a proven track record nor a credit history. Accessing financing is therefore more difficult.

Startups can get business loans. You will need to submit a business plan and cash flow forecast for most of these loans.

Eligibility and access can be a disadvantage when you choose a loan for your business, but there are benefits to using the business loan route.

  • You can borrow more than you would with a personal loan. This can be a significant advantage if your business aims to grow.
  • They are made for business users and come with a range financing options. A merchant cash advance (or invoice financing) may be more suitable than a traditional loan.
  • They often come with some form of support. Although personal loan lenders won’t be interested in what your do with the money so long as it is repaid, business loan support is often essential, especially for startups or small businesses with limited experience.
  • By taking out a loan for your business, you can build a credit history that will help you access additional funding later.

Personal loan

A personal loan is for your personal use only. If you are thinking about taking out a personal loan to help fund your startup, the biggest issue is that lenders may specify that it should only be used for personal use. The lender can also demand repayment if the loan is used for business purposes.

You won’t need to disclose any information about your business if you find a lender willing to allow you to apply for a personal loan. You will have to fill out less paperwork than if your application was for a business loan.

Personal loans are more accessible than small business loans when financing your startup. You should also be aware of some limitations.

  • The individual who takes out the loan is responsible for it. Because it’s a personal loan, your credit history and name will be considered, not the business’s. Your credit rating will also be affected if the business fails to repay the loan.
  • Personal loans are usually smaller than business loan. It may be a better idea to look at other funding options, if you’re looking for more cash.
  • Personal loans are less supported. A personal loan is not as likely to be supported as a business loan. But you can expect advice and mentoring if the loan is for a business purpose.

Startup loans

Consider a startup loan if a personal or business loan does not feel right for you. This personal loan is guaranteed by the government and can be used to help start or grow your business.

The loan is secured and can be used for between £1,000 and £25,000. Owners and partners can make individual applications for up to £25,000. A maximum of £100,000.000 per business is available. The finance will be paid out, and successful applicants will receive free 12-month mentoring.

You will need to complete a credit check and a personal affordability check before applying. Additionally, you will need to provide a cash flow forecast as well as a business plan. You can also find templates and guides on the startuploans.co.uk website if this is your first time.