Personal vs. Business Loan Applications: Key Differences You Must Know
April 08, 2025 | Last Updated on: April 08, 2025
By Nick Perry
When you’re running a business, it’s important to keep business and personal expenditures separate for tax reasons. But that doesn’t mean you can’t use personal loans for business
purposes. While small business loans offer useful funding solutions for entrepreneurs, new business owners with little experience and no business credit score may have difficulty getting a business loan. In that case, a personal loan may be a good solution.
Both business and personal loans can give you funding you need for your business, and in some cases, the loan application process is very similar. However, if you’re ready to apply for a loan, there are some key differences about the loan application and types of loans you should know.
In this article:
- The pros and cons of both business and personal loans.
- How the loan application differs between business and personal loans.
- How to choose which option is right for your business.
What Are Personal Loans?
Personal loans are loans given by a lender based on an evaluation of personal eligibility factors, including your personal credit score, income, and current debt. There are many types of personal loans, from very common debt like car loans and student loans to mortgages and home equity lines of credit (HELOCs).
Generally, personal loans have lower loan amount maximums than business loans and are often used for a specific purpose. If you have a high credit score, you can get the lowest rates available.
Pros of personal loans for business owners
- Simpler loan application: There are many personal lenders on the market, giving each an incentive to simply the loan application You can usually find an online loan application and, after submitting to a hard credit inquiry and evaluation, can receive a decision fairly quickly.
- Faster funding: Getting a personal loan is usually faster than a business loan, with funding possible in as little as one week.
Cons of personal loans for business owners
- Smaller loan amounts: Regardless of credit approval, personal loans tend to be much smaller than small business loans.
- Intended for personal use: While you can use personal loans to cover emergency business expenses or use them as startup funds, they’re designed for personal expenses like home improvement or debt consolidation.
- Won’t improve business credit score: When you repay a loan, you build credit. However, with a personal loan, you’ll only build your personal credit score since your repayments will be reported to the major personal credit bureaus rather than the business ones.
What Are Business Loans?
Business loans are loans granted based on your business’s financial profile. The loan process for some types of business loans may look very similar to personal loans, as you may have a fixed-rate loan with a fixed monthly payment based on an interest rate, but the loan application process will likely look different, and businesses are eligible for much larger loan amounts.
Business loans must be used for business purposes. Some business owners may use different types of loans for specific needs, like buying equipment or inventory. Depending on how a business owner plans to use the money, they may leverage several types of business loan programs, including:
- Term loans
- SBA loans
- Business lines of credit
- Business credit cards
- Commercial real estate loans
- Equipment financing
Pros of business loans for business owners
- Higher loan amounts:S. Small Business Administration (SBA) loans and other term loans may offer up to $5 million in loan proceeds, which is much more than the typical personal loan. This provides flexible funding to purchase real estate, make renovations on a business location, buy an existing business, increase cash flow, and more.
- Builds business credit: The more your business builds credit, the more likely it will be to qualify for additional funding in the future. Making on-time monthly payments on a business loan will increase a business’s credit score.
- Lower interest rates: Generally, small business loans have more competitive interest rates than personal loans. As of March 2025, the SBA 7(a) loan program offers 12.5% to 15.5% annual percentage rates (APR) for fixed interest rates and 10.5% to 14% APR for variable rates, based on your creditworthiness.
Cons of business loans for business owners
- Complicated loan application: The process for business loans tends to be more rigorous, with more stringent qualification factors, often including time in business and annual revenue requirements.
- Collateral or personal guarantee more likely: Many business loan lenders require you to provide business assets as collateral to secure a loan. Alternatively, they may demand a personal guarantee, which allows the lender to sue you personally if the company doesn’t repay the loan.
- Higher fees: Depending on the lender, personal loans may have significant fees, as well, but business loans often have an origination fee. This fee covers costs like underwriting and preparing the loan term paperwork, and can range from 0.5% to more than 5%. Usually, origination fees are taken from the loan amount, which reduces the proceeds in your deposit account.
The Personal Loan Application Process
Generally speaking, the personal loan application process is easier than applying for a business loan. Lenders have fewer requirements for personal borrowers and the application tends to be fairly short. From when you apply for a loan to getting the proceeds deposited in a savings account or checking account, the whole process may take just a few business days.
No two loan applications are the same, of course, but generally, the process looks like this:
- Research lenders: When you know your funding needs, do some research into the minimum qualification requirements. Usually, lenders specify a minimum credit score, or income required to get certain types of loans. They may have restrictions on using personal loan funds for business purposes, too, so make sure you read the fine print. Personal loans are available from traditional lenders like banks or credit unions, as well as online lenders. Usually, online lenders have higher interest rates but an easier loan application
- Apply for pre-approval: Many lenders today allow you to get pre-qualified with a soft credit check that won’t impact your credit score. Once pre-qualified, you can see the loan terms you’re offered, which makes it easier to compare terms between lenders.
- Compare loan offers: You’ll need to borrow enough to cover your business needs, so make sure that you’re only considering loans that will offer enough funding and have favorable repayment terms to avoid hamstringing your business. You might also weigh features like autopay or the ability to refinance the loan after a certain time.
- Apply for a loan: Most lenders today offer an online loan application. Gather your income documentation and submit the application to trigger a hard credit check. Once approved, you’ll receive the loan proceeds shortly after.
Eligibility Requirements
Eligibility requirements range considerably between lenders, but typical requirements include:
- Qualifying minimum credit score
- Proof of identity like a Social Security Number (SSN)
- Income verification from pay stubs or tax returns
- Debt-to-income ratio (DTI) no higher than 40%
The Business Loan Application Process
Eligibility standards tend to be higher for business loans, which makes the application process a bit longer and more complex. While some applications, like those for equipment financing, may be fairly straightforward as they’re tied to a specific asset, term loans or SBA loans are usually somewhat rigorous.
Different lenders and loan types may have different processes, but generally, it will look like this:
- Determine funding needs: Whether you just need a new piece of machinery or you want to fund a whole new branch of your business, determining your funding needs will make a big difference in what funding is available to you. There are different loan options, and lenders may have starkly different qualification requirements for certain types of loans, so it’s imperative to understand what you need before researching lenders.
- Shop lenders: Once you know how you’ll use funding, it’s time to compare lenders based on loan programs available, qualification requirements, and common loan terms.
- Compare loan terms: Some lenders may allow you to pre-qualify for business loans, which will give you the opportunity to compare loan offers. When comparing, look at the APR, loan term, fees, and monthly payment to figure out both the monthly cost and total cost of the loan.
- Gather documentation: When you’re ready to apply for a loan, you’ll need a lot of paperwork for the business loan application, so gather it early to avoid delays.
- Apply for a loan: Business loan applications may take a few weeks to process as lenders dive deep into your business finances and are very thorough with the underwriting process.
Eligibility Requirements
Business loan lenders usually have minimum eligibility standards that businesses must meet for loan approval. These vary between lenders, but usually, lenders prefer to lend to businesses with clear purposes, positive cash flow, detailed financial records, and good business credit (or an owner with good personal credit).
Typically, online lenders have fewer loan application requirements than traditional lenders, but it’s not always the case. In either case, you’ll likely need the following:
- Qualifying minimum credit score
- Qualifying time in business
- Qualifying annual revenue
- Business license and registration
- Business plan
- Bank statements
- Current accounts receivable
Lenders will use all of this documentation to determine the loan amount and loan terms you qualify for.
Should I get a business loan or a personal loan?
There are benefits to both personal loans and business loans when you’re looking for business funding, so the right choice depends on your situation.
A business loan is better if:
- You have significant costs: Business loans have higher loan amounts and fewer restrictions on how you spend the money, allowing you to cover many business expenses.
- You have an established business: Many lenders require a certain amount of time in business for business loans, so if you’ve been operational for at least a year, it’s worth exploring the better interest rates and loan terms of business loans.
- You want to build business credit: If you expect you’ll have additional funding needs in the future, it’s a good idea to start building business credit now.
A personal loan may be better if:
- Your business is new: If you’re looking for startup funds or your business doesn’t have a credit history yet, a personal loan may be your only option.
- You need money quickly: Typically, personal loan applications process faster than business ones, so if you need money fast, a personal loan that doesn’t have restrictions on business usage may be a good option.
- You don’t have collateral: Most personal loans are unsecured, so if you don’t have the collateral for a business loan, a personal loan is a better choice.
- You want an easier loan application: Personal applications tend to be simpler and faster than business ones.
Final Thoughts
Depending on your situation, either a business loan or a personal loan may make sense for funding your business. While business loans offer higher loan amounts and more competitive interest rates, personal loans are often faster and have less strict eligibility requirements. The loan application process for business loans is much more rigorous than for personal loans, but with this guide, you’ll be prepared for either.
FAQs about Loan Application
Can you use a personal loan for business purchases?
It depends. Personal loans are designed for personal use, but many entrepreneurs use personal loans or credit cards to fund new ventures since business loans often have requirements that new businesses can’t meet. That said, it’s imperative to check with your lender that personal loan funds are not restricted from business use.
Is it easier to get a personal loan or a business loan?
It’s easier to get a personal loan. The loan application process tends to be faster, and the due diligence process is much less rigorous. However, this is general, and the ease will vary depending on each individual application.
What credit score do I need for a business loan?
It depends on the lender. Some traditional banks may require a credit score of 680 or higher. Alternative lenders may approve applicants with credit scores as low as 500.
How long does it take to get a business loan?
While the loan application may take just a few minutes, the business loan approval process tends to be much longer than the personal loan process. This is because lenders need to vet your business’s financial profile more closely. The process may take several weeks.
How long does it take to get a personal loan?
Personal loans usually are approved and funded faster than business loans. Again, the loan application is often quick, but funding may come through in a matter of days rather than a matter of weeks.
