While small business loans may be an option for some entrepreneurs, the fact that they require business owners to submit a business plan and expect a longer processing time means that many entrepreneurs turn to personal loans for the assets they need. And while both personal and business loans have specific advantages, here’s what experts say you should know.
Personal Loans Can Make Sense When You Don’t Have the Paperwork for an SBA Loan
According to Ashley Russo, a financial expert, personal loans can make more sense for entrepreneurs if you don’t have the business-related documents to apply for an SBA loan. Unlike SBA loans, there doesn’t need to be any interest in starting a business to apply for a loan, and you won’t need to show business-related tax documents or pay stubs. If you need to drum up money quickly, this can be the more expeditious route.
As approval times for personal loans tend to be much quicker, some individuals are approved in as little as less than a week. Of course, Russo also warns that if you do decide to apply for a personal loan, entrepreneurs should ensure there are no restrictions on how the loan can be spent. Being upfront with the lender about how you tend to spend the loan can be crucial to making sure you’re not breaching the terms of your loan agreement.
Small Business Loans Can Offer Bigger Lines of Credit
Personal loans can be beneficial for faster approval times and less business-related paperwork, but experts argue that a small business loan is also a viable choice. Furthermore, according to Russo, SBA loans tend to have higher maximums, and they aren’t always tied to your personal credit history like personal loans are. Also, make sure to explore different types of business loans like working capital loans “that are meant to help cover payroll and rent for your office or workspace”.
Besides those considerations, financial experts don’t want you to forget about how low-interest rates play a role in your loan. In 2021, average personal loan interest rates are at some of the lowest rates they’ve been all year and only continue to show signs of dropping.
Rates can also depend on your own personal credit history, but for entrepreneurs with good credit scores looking to fund their business ventures, personal loans are a viable option.