There are a lot of different loans out there. Learning all about the different kinds of loans you can apply for may leave you feeling a little confused. Which loan is best? Which will give you the best financial advantages? It is hard to tell! Here we will compare short term loans and business loans to give you a clearer idea of how these two types of loans vary. Hopefully, it will help you decided which to choose!
Business vs Personal
The first difference between cash loans and business loans are how you apply. More specifically, who applies? In general, a short term loan is considered a personal loan. That means you are taking the money out using your own, personal financial history and background. Once you have the loan, you are personally responsible for paying it back and the loan will go on your individual credit report.
A business loan, on the other hand, relies on your business’s financial state in order to be approved. You will apply for the loan using your business ID number and the lender will assess your business rather than your personal finances. That being said, a business with a more established credit history is more likely to be approved for a business loan.
To make it a little more complicated, in some situations, you can apply for a business loan using your own personal history. However, while it may be a loan to use specifically for your business, you are still personally responsible as it if your own name on the loan.
The length of a short term loan is, well, short! Short term loans tend to be a smaller amount of money and the terms will require you to pay back the loans sooner. This can be beneficial as it means you are paying less interest since the loan will be completed sooner.
Most business loans give you a little more time to pay them off. A typical business loan lasts about 3-6 years. However, if you are taking out a significant amount of cash, the loan term maybe 10 or even 20 years. The exact length of the loan will depend on your lender and the amount you are borrowing but, in general, you will have more time to pay off the loan than if you chose to use a short term loan
When you take out a short term loan, you will be able to spend the money as you wish with very few (or no) requirements. This means once you have the cash in your account, you can use it to help with business expenses, to pay your own personal rent or even to buy a car, if you wanted to!
A business loan will actually restrict what you can purchase, requiring you to use the loan money to pay only for business-related expenses. The lender may require receipts or other proof that the loan money is being used for business purposes. Spending the money otherwise may have repercussions so be sure you understand your loan terms!