When it comes to funding a business, there are many options available in the market. However, choosing the lending option suited to your circumstances depends on a number of factors. The business structure, goals, financial history, and business plan, all play a crucial role in determining your financing options. In this article, we will discuss the differences between personal lending and business lending and their implications. We will also talk about the different types of business loans available for entrepreneurs.
Personal Lending vs Business Lending
One of the key differences between personal lending and business lending is how the loan is secured. Personal loans are often granted based on an individual’s credit score and income. However, business loans can be secured using the assets of the business, such as plant and equipment, accounts receivable, inventory, and commercial property. In the case of default, the lender can claim these assets. This protects the lender from the risks associated with lending to a new or untested business.
Different types of business loans
There are several types of business loans to choose from depending on the funding requirements and business goals. A start-up loan can provide the initial capital to get the business up and running, or a cash flow boost loan can provide additional working capital during times of low cash flow or to support an expansion. Plant and equipment loans allow businesses to purchase or upgrade equipment essential to the business. For businesses looking to acquire a permanent physical location, you may also look to finance your new premises.
Before committing to a loan, you may find it beneficial to crunch your numbers with your accountant so that you have a clear understanding of your ability to make your repayments, and have a plan if things don’t go to plan.
House as collateral for business loans
You may also consider using your home as collateral for a business loan as security or equity. However, this can be a risky strategy, as it puts your personal assets at risk in the case of default. It is essential to consider your ability to repay the loan before acting on the option of using a personal asset as collateral for a business loan.
There are many options available for businesses looking to secure funding. It’s important to consider the business structure, goals and financial history, when deciding which loan option suits your circumstances. If you would like to discuss your situation and options available, please book a chat.
Terms are subject to approved persons only. This information is true and correct as of 30/05/2023. All of the content above is general in nature and may not suit your personal needs, situation objective & goals.