Are business loans harder to get than personal loans?

Getting business financing can help you expand your business, buy essential equipment or bridge cash flow gaps from slow seasons or slow-paying customers. While business loans are specifically designed to fund your business, you can also choose to use a personal loan for business expenses. Both personal loans and business loans can have similar requirements to apply, depending on which lender you choose.

But there are some differences. If you’ve been considering a personal loan for business purposes, compare the latest small business loan vs. personal loan options first. You might discover that a business loan actually serves you best.

Let’s look at some key factors you should look at when deciding which loan type is right for you.

Speed and convenience

Both personal loans and business loans are not hard to get, as long as you apply with a lender that will accept your qualifications. For small business loans, if you go through a traditional lending institution (like a bank), it can be hard to get if you don’t have great credit and strong finances. As a result, there’s a widely spread myth that a personal loan is much easier to get.

But thanks to the rise of online lenders with streamlined application processes and more relaxed qualification criteria, getting a small business loan can be much easier than many expect. Yet you can find personal loans with similar requirements as online business loans. In fact, if you qualify for a personal loan, you can probably get a business loan too.

Speed and convenience

Personal loans are not hard to get, and you can often receive the money quickly. A lot of personal loans only require basic personal information. What’s more, they can often fund the same day or the day after, meaning you get the money from the loan fast. Personal loans have long been a solution when people — including business owners — need a lump sum of cash.

But does that mean a small business loan is hard to get? Getting a business loan from a bank or credit union has long been a time-consuming, work-intensive process. But fast business loans from tech-supported lenders offer online applications that you can fill out in minutes, get approval in hours and funding the same or next day. In other words, small business loans from online lenders often rival personal loans in speed and convenience.

Startup businesses

In the small business loan vs. personal loan debate, the time-in-business requirement has often shifted startup founders toward personal loans. Personal loans don’t require you to have a certain amount of time in business — you only need to prove that you have enough personal income to repay the loan.

On the other hand, many business lenders require at least two years in operation before they issue a business loan. If your startup business needs a loan, that can be a deal-breaker. Fortunately, though, many of the online lenders operating today have dramatically shortened that requirement to six months. Still, that requirement can edge out startup businesses that need funding just to get off the ground.

Plus, easy might not necessarily be better when it comes to the financing your startup needs. For example, getting an SBA-backed startup loan will require more documentation and a longer timeline to receive funding. But because the Small Business Administration guarantees these loans, lenders associate them with less risk. And that can mean lower interest rates, bigger loan amounts and longer repayment timelines than personal loans. If you can wait one to three months to receive your loan, it may be worth seeing if you qualify for an SBA startup loan.

Loan amounts

The amount of money you want to borrow will also play a role in which type of loan you choose. A lot of personal loans come in the range of $50,000 to $100,000. That amount can be limiting for businesses with big goals, and it’s hard to get a personal loan over $100,000.

On the other hand, small business loans are easier to get when you need a large loan amount. Amounts often range from $5,000 to $5 million, depending on the lender and type of loan. And even if you’re a startup or you don’t have a good credit score, there are plenty of business loans over $100,000 that you can explore. If you need less, several business lenders also offer low starting loan amounts.

Low interest rates

With both personal and business loans, your financial history impacts how much you’ll pay in interest. In the small business loan world, lenders offer the lowest interest rates to companies that look financially solid. That usually means operating for six months to two years with strong annual revenue. The lender will also consider both your business and personal credit scores. Business owners with strong credit may qualify for rates as low as 8 percent to 9 percent.

For a personal loan, the application doesn’t pull in details about your business, but that doesn’t mean you won’t get evaluated. Instead, the lender looks at your personal credit score. The higher the score, the lower the rate they’ll offer you. However, personal loans tend to have higher rates than business loans. If you have strong credit, you can receive interest rates between 11 percent to 13 percent.

So, is it hard to get a business loan with a low interest rate? That depends on how your company’s finances look on paper. Similarly, scoring a low rate on your personal loan depends on your personal finances. If you’re going for the lowest interest rate, you may want to prequalify with both business and personal loans to see which type gives you the best offer. If you have excellent credit, you may want to go with a business loan for the lowest rates.

Bad credit

You still have options if your credit score could use some work. There are many lenders who offer bad credit business loans and will work with applicants with minimum credit score requirements of 500 and above.

Personal loans come with similar requirements, although minimum credit scores are generally a little higher: in the 550–600 range. If you can qualify, though, personal loans for bad credit borrowers often come with lower maximum interest rates than even the best bad credit business loans.

If your credit score is below the 550 mark, you can also look into personal loans. Some lenders have relaxed eligibility criteria. For example, you can get an Upstart personal loan for business purposes with a minimum credit score of just 300 and a personal annual income of $12,000.

Repayment terms

In the small business loan vs. personal loan debate, the amount of time you have to pay back the money should definitely enter the conversation. With a personal loan, you usually have around two to five years to repay a loan. On the other hand, small business loans often have terms of up to a decade or more. If you’re looking to get a loan but plan to pay it off quickly, you can find short-term business loans with terms from six to 24 months.

Your financial profile comes into play as lenders assess what repayment terms you qualify for. Getting a long-term business loan usually requires you to meet requirements like a solid annual revenue, decent time-in-business and a good personal credit score. If you can’t meet those criteria, a personal loan might be a better option for a longer repayment timetable.

Bottom line

Personal loans aren’t hard to get when compared to other types of financing. They often accept low credit scores and can approve you for startup financing whereas a business loan might not approve you.

But a small business loan is also not hard to get if you go through an online lender. In fact, lenders increasingly offer business financing to business owners who have bad credit. Ultimately, if you can qualify for a personal loan, you can probably qualify for a business loan.

Take the time to research your loan options — both personal and business loans — and evaluate interest rates, time-to-fund and loan amounts. That way, you can be confident you’re getting the best loan for your specific small business’s needs.

Frequently asked questions

• Is it easier to get a personal loan or a business loan?

  Even five years ago, personal loans might have been easier to get than a business loan. Today, though, online business lenders often offer streamlined application processes, lower eligibility criteria and fast funding times — all of which rival personal loans.

• Does a business loan affect personal credit?

  A business loan can impact your personal credit, but usually only if you miss payments or default on the loan. Many business loans require you to sign a personal guarantee, which guarantees that you will repay from personal assets if your business can’t pay. Because of this personal guarantee, a loan default could show up on your personal credit. You may also see a small dip in your personal credit score when you apply for a business loan. Many lenders will perform a hard credit check during the application process.

• Is it hard to get your first business loan?

  It can be tricky, especially if your business has been operating for less than two years. But many small business owners can get a business loan thanks to online lenders with relaxed eligibility requirements and loans backed by the Small Business Administration.