How the Process of Getting a Personal Loan and Business Loan are Different
Prior to doing this, you’ll need to know that there is a difference between the two. In this post, we’ll detail how these two types of loans differ.
One of the first differences you will notice is in the amounts that you can apply for. Generally, personal loans tend to be for smaller amounts, and they are usually ‘unsecured.’
In comparison, a business loan will typically have a higher amount range, and it can be issued on a ‘secured’ basis. What this means is that you may need to put something down as collateral or a guarantee for the loan so that in the unfortunate event of you being unable to repay the money the lender can claim a material object back instead.
In some instances, this can make it difficult for start-up businesses to obtain a business loan as they have nothing to secure it against, but there are lenders who take this into consideration and are willing to lend to start-ups. In addition, there are also other lenders that operate on an unsecured basis. If you’re pursuing a business loan, you may want to consider finding lenders that are comfortable providing unsecured business loans.
If you’re in need of a certain amount of money, it may be more beneficial to apply for a business loan instead of a personal loan. This way, you’ll have the amount that you need to grow your business.
Justifying the loan
When applying for a personal loan, most lenders will want to see proof of income and that you can afford to repay it. Depending on your personal credit score this could be a good or bad thing. The lender usually isn’t interested in seeing evidence of what you will use the money for, which does give you flexibility on how the money is spent.
With a business loan, they are likely to ask for a lot more information on why you need the loan and how the money will be spent. Loans for business expansion or purchasing new equipment should not be met with much resistance, but if the money is being used to pay off another loan or to make an unusual investment, then they might ask for more information. Still, many lenders realize that their customers will need loans for different reasons, and will be happy to work with you to determine an amount that will fit your business’s goals.
Documents to provide
The third part of the process in deciding between a business or personal loan is comparing the required documentation.
As referenced earlier, for a personal loan, all the lender will normally require is proof that the loan can be repaid.
However, with a business loan, it is not uncommon for the lender to request a copy of the business plan, cash-flow reports, profit/loss statements and in some situations, an analysis of the market the business is operating in.
For a business, most of these documents should be produced as standard, but for the loan application process to go smoothly, you should ensure that these documents are kept up-to-date.
Length of process
The final part of the process on how to get a loan is the actual length of time between applying and being granted the money.
A personal loan application can take place very quickly, with many online lenders now offering instant decisions. However, you need to be wary of their terms and conditions and the interest rates they apply, but normally speaking, a personal loan application should be turned around quicker than a business loan.
Understandably, given the amount of information that a lender requests, applying for a business loan will take longer. As larger amounts of money are usually involved, greater scrutiny is given and in some situations, in addition to the money, lenders may provide additional support and business guidance to ensure the money is spent in the right way. This can prove hugely beneficial to new businesses and entrepreneurs. Still, there are many business lenders that aim to provide a fast and efficient process. At Fora Financial, we’re able to provide working capital to our customers within 72 hours from a business receiving their approval status.
Another point to consider is that once the loan has been issued, with a personal loan the lender may not require any further contact with you – unless your circumstances change. Whereas, with a business loan, the lender may request annual updates on the financial health of your business, so the length of the process is ongoing in a way.
If you are considering applying for a business or personal loan, then you should assess your business’s financial needs, time frame and other requirements. There are many financial options out there, but it is important that you choose the one that is the best fit for you!