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NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on October 9, 2024. Next review due October 1, 2025.
You may be an entrepreneur who needs cash to get their start-up off the ground, or you could be a business owner who needs more working capital. Either way, you’ll always want the fastest, most efficient type of borrowing to help your business grow. In many cases, this will usually mean a business loan that’s shaped to fit your business, but if your company is new or your financial history is weak, a personal loan for business use may be a better way to go.
A business loan is a sum of money borrowed by a company to cover expenses such as expansion, operations, or equipment purchases. Offered by banks, credit unions, or nonbank lenders, these loans typically require repayment with interest over a set period. Business loans can be secured, requiring collateral, or unsecured, relying on the borrower’s creditworthiness. Organizations can use business loans to manage cash flow, invest in growth, or address short-term financial needs, but to qualify they will usually need to meet specific eligibility criteria and repayment obligations.
In their most basic form, all business loans operate the same – your business borrows a sum of cash and you then repay the money, plus interest charges and fees. However, there are many types of business loan and each has its own unique way of working:
A business term loan is the simplest form of business loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Collateral may be required.
Pros
Fixed interest rates and predictable repayment instalments
Cons
Few options to ask for extra funding or change the terms of the loan after closing
With business line of credit withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sums you withdraw, not the whole credit line. This can make the borrowing significantly cheaper. Collateral may be required.
Pros
Only pay interest on the cash you use
Cons
Higher levels of reporting usually required to maintain access to the loan facility
Merchant cash advance is available for businesses that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
Pros
No added collateral required. The loan facility grows as your card sales go up
Cons
Not suitable for businesses that don’t take card payments. Loan facility can also go down if your card sales fall
Secured business loans demand that you provide hard assets, such as real estate, plant and machinery, or inventory as security for the loan. The lender holds a lien on the assets until the loan is paid back, then full ownership returns to you. Secured loans typically come with lower interest rates and fees than many other business loans.
Similar to a merchant cash advance, but revenue based financing offers a higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), businesses may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. This type of loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical. No added collateral is required.
Pros
Fast and easier to secure than many other large business loans
Cons
Strong cashflow necessary to service the loan
Buying big ticket machinery and equipment can put a major dent in your cashflow, but equipment loans can pay for your new plant and machinery without causing financial stress. Equipment loans are ‘self-collateralizing’ – they use the asset you’re financing as security, similar to a car loan or a residential mortgage. Once the loan is approved, the lender sends the funds to the equipment vendor, who then delivers the machinery. You use the equipment as you pay for it and the lender maintains a lien on the title to the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.
Pros
No need to provide your own collateral
Cons
Can only be used for equipment purchasing, does not provide any cash
Available up to $50,000, SBA microloans come with relaxed qualifying rules and can usually be secured with FICO scores as low as 500, or even with no credit score at all.
In their most basic form, all business loans operate the same – your business borrows a sum of cash and you then repay the money, plus interest charges and fees. However, there are many types of business loan and each has its own unique way of working:
A personal loan for business is exactly what it sounds like – you take out a personal loan and then use the funds to launch or grow your business. Unlike a standard business loan, which is reliant on the performance of your organization, a personal loan is typically granted according to your personal score, individual financial history and the value of any collateral you provide.
Top tip: Some lenders may have rules that forbid the use of personal loans for business purposes. Always check with the lender that business use is allowed before applying for a loan.
Compared to business loans, where there are many different types of loan, personal loans for business use are usually simple term loans where you receive a lump sum and pay it back over time plus interest and fees. Personal term loans fall into two basic categories:
Pros
Cons
Pros
Cons
If you need less than $50,000 and your business history is new or patchy, taking out a personal loan for business use may be a better option than applying for a business loan. However, before you take the plunge and apply for a personal loan, consider these important points:
No matter if you’re looking for a business loan or a personal loan for business use, working with finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality loans from a choice of lenders. Give your business the financial support it deserves. Register with Swoop today.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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