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Personal Loan vs Business Loan - Which is Right for Your Business?
July 23, 2026
July 23, 2026
Starting a business isn’t cheap. Startup costs can easily run to tens of thousands of dollars, and you’ll need more money to grow as your business takes off.
For many entrepreneurs, the best way to get the money needed to get a business off the ground is to take out a loan. However, when it comes to funding your business with a loan, you have an important choice to make: should you take out a personal loan or a business loan?
Both types of loans have advantages and disadvantages, with potentially important implications for your finances. In this guide, we’ll explain the differences between personal and business loans and help you decide which is right for you.
A personal loan is an unsecured loan that you can use for anything you want, including starting a business.
When taking out a personal loan, you receive a lump sum of money and then pay it back with interest in monthly installments. Personal loans can range in value from a few thousand dollars up to $50,000 or more, and repayment terms typically range from 1 to 5 years.
Since personal loans are unsecured, your home and business assets aren’t at risk of foreclosure if you fail to pay back your loan. However, your personal credit score will suffer if you fall behind on payments on a personal loan, which could make it harder to borrow money in the future.
Personal loans are issued based on your personal credit history. The higher your credit score, the more money you can borrow and the lower your interest rate will be.
Most personal loan lenders will let you use the money you borrow for whatever you want, including starting a business. That said, you may come across lenders that put restrictions on how you can spend your loan. Make sure you understand which business expenses you can use your loan funds for and which you can’t.
When you’re using a personal loan to fund business expenses, it’s important to remember that the loan is still tied to you personally—not to your business. That means that you, not your business, are responsible for making sure that your monthly payments are made. If you fall behind on your monthly payments, it will be your personal credit score that suffers, and you will be personally liable for paying back your outstanding debt.
A business loan is a type of loan issued to small businesses rather than individuals. Typically, business loans are secured, meaning that you need to put up your business assets as collateral for the loan.
The best business loans can be term loans with a fixed monthly payment, similar to personal loans. However, you can also find business loans that offer variable repayments based on the amount of money coming into your business. For startups and cyclical businesses with variable cash flow, these types of business loans can be more flexible than typical term loans.
Importantly, business loans can be quite large—up to hundreds of thousands of dollars in some instances.
Business loans are issued based on your business’s credit history as well as your own personal credit history. Depending on the value of your business, you may be required to provide a personal guarantee to get a business loan. In that case, you will still be personally responsible for paying back the loan in the event that your company falls behind on payments or goes out of business. If you're looking for a step-by-step guide, read our educational article: How to Apply for a Business Loan in 7 Steps.
Business loans can be used for any business expenses. Using a business loan to fund your business helps separate your personal and business finances, which can make figuring out your taxes easier and qualify you for significant business-related deductions.
One of the key reasons to use a business loan to launch your business is to limit your personal financial liability. You may be able to simply walk away from business loan debt if your business fails. However, this depends on the legal structure of your business and whether or not you have a personal guarantee. Failing to pay back a business loan can also impact your ability to take out another business loan in the future.
In 2026, business loans usually carry lower interest rates than personal loans, while personal loans tend to fund faster and come with shorter repayment terms. Recent Federal Reserve consumer credit data shows the average rate on a two-year personal loan from a commercial bank is about 12%, with your actual rate depending on your credit profile. Small-business borrowers using an SBA 7(a) loan get a rate capped at a base rate plus a set lender spread (up to prime plus 6.5% on smaller loans), with a maximum loan amount of $5 million, according to the U.S. Small Business Administration. With the bank prime loan rate at 6.75%, per the Federal Reserve, that puts the resulting SBA 7(a) rate at roughly the low-teens at most.
Factor | Personal Loan | Business Loan |
Typical interest rate (2026) | About 12% on average (two-year bank loan) | Capped near prime plus a set spread (SBA 7(a)) |
Typical loan amount | Up to about $50,000 | Up to $5 million for SBA 7(a) loans |
Repayment term | About 1–5 years | Longer terms, often 10 years or more |
Funding speed | Often within a few business days | Days to several weeks |
Each loan type trades off cost, speed, borrowing limits, and personal risk, as the side-by-side comparison below shows.
Factor | Personal Loan | Business Loan |
Loan Amount | Up to $50,000 | Can reach hundreds of thousands of dollars |
Approval Time | Same-day approval possible | Typically takes longer |
Credit History Requirement | Doesn’t require business credit history | Usually requires an established business credit history |
Collateral | Generally unsecured | Often secured by business assets |
Personal Liability | You are personally liable for repayment | You are not personally liable (in many cases) |
Interest Rates | Typically higher | Usually lower |
Use for Business Expenses | Not all lenders allow it | Specifically designed for business-related expenses |
Builds Business Credit? | No | Yes |
Debt Impact | Affects your personal debt-to-income ratio | Keeps personal and business finances separate |
One more thing to weigh: some personal loan providers allow funds to be used for business purposes and some don’t, so always check with the lender before applying. While personal loans may be easier and faster to obtain, they won’t help build your business credit and could expose you to more personal financial risk.
For a new business, the right funding often comes down to whether you need speed and simplicity or larger amounts and business-credit building. Below, we review two options for new business owners.
Credible is an online platform—not a direct lender—that lets you compare personal loan offers in one place. It lets you compare personal loan offers from 17 lenders, some of which offer loans up to $100,000, so you can weigh multiple offers and find a competitive rate. There’s no fee for using Credible to compare offers, and you can apply for a loan through the platform.
OnDeck is a business lender that offers both term loans and revolving lines of credit for small businesses. If you opt for a term loan, your business can borrow up to $250,000. With a business line of credit, you can borrow up to $100,000. You only need to have 1 year in business to qualify, and you can get money in your account the same day you apply.
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Which loan is right for you depends mainly on your business’s age, how much you need, and how fast you need it.
New business with no business credit: A personal loan is often the realistic path, since approval leans on your personal credit. Remember you’re personally on the hook for repayment.
Established business needing a larger amount: A business loan usually fits better, with lower rates, higher limits, and business-credit building.
Need funds fast: Personal loans typically fund quicker, which matters when an opportunity or expense won’t wait.
Want to protect your personal finances: A business loan can limit personal liability, but watch for a personal guarantee that puts you back on the hook.
Your next step is to compare specific loan offers against the priorities you just set. From there, you can:
Compare top business loan providers and read their reviews to see rates and limits side by side.
If your credit is still building, read our guide on how to get a business loan with bad credit.
Match the loan to the amount you need, your timeline, and how much personal risk you’re willing to take.
Yes, in most cases—but it depends on the lender. Many personal loan providers allow business use while some restrict it, so confirm the lender’s rules before you apply.
It can, especially if the lender requires a personal guarantee. In that case, missed business payments can show up on and hurt your personal credit.
For a new business, a personal loan is often easier to qualify for, because it relies on your personal credit rather than an established business track record.
Business loans usually carry lower rates than personal loans. The average rate on a two-year personal bank loan is about 12% in 2026, per Federal Reserve consumer credit data, while SBA 7(a) business loan rates are capped at a base rate plus a set lender spread, according to the SBA.
Yes, many lenders allow it. Just keep in mind that each application can affect your credit and add to your overall debt load.
This guide was written by Michael Graw, a business and personal finance writer who covers lending, banking, and small-business topics for BestMoney. Our editorial team checks rate figures and loan program details against primary sources—such as Federal Reserve and SBA data—before publishing, and updates the guidance as rates and programs change.
To refresh this guide, we relied on secondary sources rather than a proprietary BestMoney survey. We pulled current personal loan rate context from Federal Reserve interest-rate releases, business loan terms and limits from the U.S. Small Business Administration’s 7(a) program pages, and reviewed leading published comparison guides to confirm the questions borrowers most often ask. Where a figure could not be traced to an authoritative primary source, we removed it.
Federal Reserve, Selected Interest Rates (H.15): federalreserve.gov/releases/h15
Federal Reserve, Consumer Credit (G.19): federalreserve.gov/releases/g19/current
U.S. Small Business Administration, 7(a) loans: sba.gov/funding-programs/loans/7a-loans
Michael Graw is a personal finance expert at BestMoney.com, specializing in online banking and insurance. His work has appeared in print magazines and on high-impact websites. With a passion for clarity and practicality, Michael helps readers navigate today’s financial landscape.