Why worry about loans?
Understanding the difference between personal and business loans in Canada. Since too much debt can be crippling, it makes sense to collect as little debt as possible.
But while trying to avoid debt is admirable, it is also near impossible for the average person. Two of the most common types of debt Canadians accumulate:
- A credit card: Nearly unavoidable in the 21st century, especially since it is conveniently available for online purchase.
- Big ticket items tuition, a car, or even a home that will all be in debt for a certain amount of time.
The same is true in business. An owner may encounter situations where they will need to spend more than they have on hand. Some types of these situations are when you need to purchase new equipment, hire new staff or even buy inventory. If you’re in a similar position, you’ll be thinking about applying for financing, usually from a bank or a private lender. But which loan should you get, a business or a personal one? From who, a bank or a private lender? Does it matter? Let’s take a closer look.
The Personal Loan
A personal loan is precisely what the name indicates: a loan for personal use. Personal loans are a lump sum of money that, if approved, is given to you to do whatever you want to with it.
Of course, the “personal” in personal loans means that the intention is to give some financial assistance to their business. If you’re thinking about renovating your kitchen or even just want to help out a relative in need, you can do it with it as you please. Their requirement criteria are flexible making them very appealing and easy to get. This is because of the non-business nature of the loan and the fact that smaller amounts are involved-personal loans and do not have the same strict requirements for business financing.
The Business Loan
You would take a business loan to pay for business expenses. The amount you can borrow is higher than usual. If you’re looking to renovate your store, buying new equipment, or seeking funds to hire staff, business loans can support all of these.
Of course, because of the professional nature of business loans, which also means a level of complexity and qualification to get business loans. Good business credit is essential, and many more options such as variable rates, interest costs, and payment options. You may also need to provide collateral for certain types of loans.
Getting a business loan does not always have to take long or tough. See how Thinking Capital’s borrowing process for small business owners is easy, upfront-collateral free, and quick. We usually approve and fund you within 2 business days.
The Big Difference Between Personal & Business Loans
Looking for all this, you might think to yourself, “why should not I just use the loan?” It’s true that you can be used for anything , like investing in your business. However, there’s one big catch. A personal loan leaves you and your personal finance liable for anything that goes wrong.
A business loan, once granted, is intended for use by your business. Meaning, that you are unable to return the debt, it’s your business that’s held responsible. Having the business held responsible, your personal credit score remains protected. On the other hand, with personal loans, the bank has the right to make some money. This in turn negatively affects your personal credit score.
To summarize, business loan risk is “contained” within the company. While personal loans and personal loans for your private finances.
Both types of loans are based on your personal credit score. With the exception of BillMarket (powered by Equifax), which is a borrowing option available in Canada.
Understand your borrowing options
Ultimately, it’s up to every person to decide whether or not the risk is worth the reward. For some, a business loan is fast, makes sense, and is easy to address. For others, however, using personal loans instead of business loans puts you at real risk that is not worth taking.