The biggest difference between business loans and personal loans? How you can use them.
Business loans must be used for business expenses. In fact, your lender will almost definitely require your loan money to go into a business bank account―not a personal one―or it may send the loans directly to a vendor (like an equipment dealer).
Now, small-business loans can help with all sorts of business expenses, from basic cash flow to payroll to equipment purchases to marketing (and much more). But the key is that these are all business expenses―not personal ones. And if you try to use your business loan for personal reasons, you could end up in big trouble.
Personal loans, on the other hand, can offer more flexibility. Of course you can use personal loans for personal expenses―but you may also be able to use personal loans for your business.
This does depend on your personal loan type and your lender. Trying to use a home mortgage to pay for business equipment won’t get you very far, for example, and using a student loan to make payroll will cause big problems for you. But if you get a personal term loan from the right lender, you can use the loan for home improvements or business equipment―no problem.
Put simply, if you need a loan for a personal expense, you definitely want a personal loan (and you can stop reading now). But if you need a loan for a business reason, you might get by with either a business loan or a personal loan. (And from this point on, we’re assuming you need a loan for your business.)