By Rob Binns | Senior Writer | Updated: 7 November 2019
While the principles are the same, there are many differences between business and personal loans, some of which you may not be aware of. Understanding the workings of a loan is essential to understanding the opportunities and restrictions and thus comprehending the differences between personal and business loans.
Personal Loans Features
As you might expect, personal loans are those given to individuals and not businesses. The way lenders look upon individuals and businesses is quite different, so the process and features of a personal loan are often exclusive. For personal loans these could include:
- Smaller Values
- Faster Payments
- Unsecured Loans
- Accessibility for Startups
Personal loans relating to most people are smaller value loans. As such the bank won't need the detail of information required for a business loan, such as a written plan of how the money will be spent. The bank will want to assess your ability to make the repayments set out in the loan’s terms and conditions. This can be an advantage or a disadvantage depending on your personal circumstances.
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The intricate parts of a business can make the application a complex and drawn out process, although our research suggests that, in current times, many alternative funding providers offer fast feedback to applicants. Personal loans can require less investigation and therefore the process can typically be quicker.
As personal loans are likely to be smaller than business loans (aside from mortgages), the need to secure the loan with personal assets is greatly reduced, thus most of them are unsecured loans. Therefore, they may be better suited than some small business loans of equivalent value.
Accessibility for Startups
Startups can often find it notoriously difficult to access funds, particularly from the traditional lenders. Personal loans might be the only option for some but it should be noted that there are many alternative funders who provide bespoke services for startups.
Business Loan Features
Business loans have changed enormously in recent years, meaning the options available to businesses have grown beyond all recognition in some areas. There are, therefore, many differences between business and personal loans, as well as some degree of crossover. We believe the main differences include:
- Higher Values
- Varied Options
- Bespoke Features
Unless you are taking out a sizeable mortgage, business loans can typically be of much higher value than personal loans. While some small business loans at the lower value end are similar in many ways, our findings illustrate that most business loans far exceed the scope of personal loans.
Due to the nature of a business as an entity, with its many industries, sizes and potential for growth, the options are extremely varied. Such options can be essential to meeting the needs of UK businesses, something that is not required in regards to personal funding.
Funding providers may not necessarily be interested in the reasons for a personal loan, unless it is relevant to your ability of meeting the loan’s terms and conditions; support could be deemed as unnecessary. In regards to business funding, particularly for small businesses and startups with little experience, support is often an essential part of the service.
As previously mentioned, the vast amount of industries requiring funding and their various setups means each industry has specific needs that the loan should be catered for.
Business Loan Providers
There are many options available to UK businesses when accessing funding. With various alternative providers and many new products offered by the traditional lenders, this can be time consuming but is vital to accessing the right loan for you. We believe some of the most reputable providers include:
Offering a vast array of loan options from small business loans to commercial mortgages, as well as various bespoke schemes, Natwest are one of the most innovative high street bank lenders. Alternative funding, such as asset and invoice factoring, are also available for those seeking other methods of financing.
As you would expect from a large financial institution such as TSB, there are many options to choose from. What makes TSB one of the most highly regarded by small businesses in particular, however, we believe is the Enterprise Guarantee Scheme. This is a government backed scheme to help the UK’s small businesses reach their full potential.
A peer to peer funding provider, Ratesetter were launched in 2010 with a view to offering financial support to small businesses across the UK. We believe that low rates, typically between 3 and 5%, and innovative practices have led them to becoming one of the most highly regarded funding providers of their type.
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