Are business loans harder to get than personal loans?

Is it hard to get a small business loan? If you go through a traditional lending institution (like a bank), it can be if you don’t have great credit and strong financial. 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. In fact, if you qualify for a personal loan, you can probably get a business loan too.

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

Are personal loans hard to get, and do you have to wait long to get the money? Generally, no and no. 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 Commercial Loan Brokers have started to change the game. A lot of these 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 Commercial Loan Brokers often rival personal loans in speed and convenience.

Startup businesses

Wanting less work and a faster turnaround time aren’t the only reasons owners have turned to personal loans for small businesses. In the small business loan vs. personal loan debate, the time-in-business requirement has often shifted startup founders toward personal loans.

A lot of 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. For example, many will offer financing to companies that have only been operating for six months.

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 work. 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.

Bankrate insight

business credit card can also be a solid option for a startup small business owner. Top card issuers offer travel and cash back rewards for purchases and other benefits. You can even build business credit without interest charges as long as you pay your balance in full each month.

Loan amounts

The amount of money you want to borrow should also play a role here. How hard is it to get a personal loan over $100,000? Pretty challenging. But is it hard to get a business loan for that sum or well over? It might be easier than you’d expect.

A lot of personal loans come in the range of $50,000 to $100,000. That can be fairly limiting for businesses with big goals.

Small business loans, on the other hand, often range from $50,000 to $5 million. 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.

Need less? No problem. 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 at least two years with strong annual revenue. If the business owner has a good credit score, all the better.

A personal loan 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.

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. So if one area is stronger than the other, pursuing financing in that arena will generally help you get a lower rate.

Bankrate insight

Interest payments on a business loan can typically be written off as a business expense. Interest payments on a personal loan can also be tax deductible when used for business or education expenses or qualified investments.

Low interest rates for bad credit borrowers

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.

Bankrate insight

Personal loans use an annual percentage rate (APR) to assess costs, which gives you a clear idea of the full cost of the loan. Comparing APRs across personal loans makes it easy to find the most affordable loan. On the other hand, the cost of small business loans might be expressed as an APR, a simple interest rate, a factor rate or more. As a result, comparing business loan costs is often more challenging.

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 three 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 here. 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.

Bankrate insight

Repayment terms for some SBA loan types can go as high as 25 years.

Bottom line

Are personal loans hard to get? Not when compared to other types of financing. But is a small business loan hard to get? If you go through an online lender, also no. In fact, lenders increasingly offer business financing to startups and 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.

Written by  Kacie Goff  Personal Finance Contributor