If you have a business then you might be in a situation where you need to borrow some money. Having a look at your loan options you may find that you will be able to borrow money more cheaply if you take out a personal loan compared with a business loan. In some cases this might be a sensible idea but in other cases it may not be. It is wise to think very carefully before doing this.
About business loans
A business loan is specifically designed to lend money to a business. This means that if you want a business loan you will have to submit a business plan and show the lender that you will be capable of making the repayments. If you cannot impress them with your figures then you may not have the opportunity to have a business loan anyway.
If you have a limited company, then any borrowing that you do on behalf of the business through a business loan will be the responsibility of the company. This means that if you get into trouble with repaying it will be the business that is responsible and not you personally. This is important because it means that if you have a house, vehicle and other possessions, these cannot be taken from you in order to repay the business loan. However, as a director of the company, any arrears on business loans will be reflected on your credit report. If the business is not limited, perhaps a sole trader or partnership then you will not be able to limit the loan. This means that you will be personally responsible for any repayments anyway. Therefore, if you are getting a loan it will not make any difference whether it is a personal loan or business loan.
Taking a personal loan
A personal loan may need to be secured against a property or something like that. You will be personally responsible for making the repayments. It is really important to make sure that you find a loan which is not too expensive but which also has repayments that you can afford. You need to think about how well you think the business will do in the future in order to calculate how much you will be able to afford to repay. It can also be very wise to imagine what might happen if the business is no making enough to make the repayments and whether it is something that you will be able to afford to manage. You will still have to make the loan repayments and pay all of your normal bills and expenses and you need to think whether this will be something that you will be able to afford to do.
Borrowing for your business
It is really wise to think hard about any sort f borrowing including borrowing for your business. Sometimes, business borrowing can feel easier because the business is liable and not you, although if you take a personal loan then it will be you that is liable. However, there is always stress involved in running a business and adding to it by getting a loan can make things worse. It is well worth thinking hard about the purpose of the loan and deciding whether you really need it. Think about whether you will really benefit as a business. Sometimes using loans to expand or things like this, will mean that although your income goes up your costs do as well. It is worth focussing on profits and thinking about whether the loan has a real potential to increase them because if it does not, then it could be worth forgetting about. It can be a hard decision to make, so discuss it with lots of other people first. It can be hard doing this as you are probably passionate about your business and where you see it heading and you may be hit with negativity. This might be realistic though because those that do not share your passion may be able to see exactly what a risk you are taking and what little potential your idea has. The more opinions you get, the more likely you are to be able to get a real picture of what is likely to happen and whether you loan is a good idea. IT might be that you should forget the idea altogether, that you should delay for a while or that you should do something on a smaller scale and borrow less money. There are different possibilities and you need to think all of them through really carefully so that you are sure that you are doing the right thing for you and your business.
So, taking out a personal loan for your business is very risky and so even if the interest rate is lower, you need to think very carefully about the consequences of doing so for your own personal finances.