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Using Personal Loans vs. Commercial Loans

Published on 4th September 2018 - Last update on 11th September 2018

No matter the size or stage your business is at, you must always be looking for more ways to take it to the next level. Yet, in order to achieve your goals, you must also ensure you have sufficient amounts of capital to support your development, which isn’t always easy. Fortunately, there is a wide range of Commercial Loans available to help. However, some business owners decide to apply for a Personal Loan instead, in the belief that they can gain a lower interest rate compared with a Commercial Loan. Although tempting, taking this path can be problematic and may have long-term consequences.

Why shouldn’t I use a Personal Loan to fund my business?

Firstly, Personal Loans aren’t designed to carry and support the challenges of running a business. They are intended specifically for use on a personal level, for things such as household utility bills, home emergencies or domestic purchases. Yet, although Personal Loans may offer lower interest rates (depending on your individual circumstances), the amount available to borrow will be much less than what you could receive using a Commercial Loan product, potentially leading to you having to draw on your own savings in order to support any remaining costs and depriving you of the funds you’ll need later on in your business’ development. You’ll also miss out on the opportunity to claim corporate tax relief (depending on your local authority and financial arrangements), which isn’t available with a Personal Loan. For further information on tax relief, consult your business accountant or advisor.

Looking to raise capital for your business? Need help sourcing an appropriate finance agreement? Apply for a Commercial Loan or learn more about how your business could benefit.

Plus, if the Personal Loan provider discovers that you’re wrongfully using their funds to support a business (which is classed as a breach of conditions) they can either demand that you repay the agreement straight away or request that another repayment scheme is established. Besides, using a Personal Loan will also deprive you of a vital opportunity to raise your business’ credit rating and show credit agencies that you’re able to support the additional outgoing of a Commercial Loan. As such, this could cost you more money in the long run (on account of interest) should you apply for a Commercial Loan in the future.

Why should I apply for a Commercial Loan instead?

There are many types of Commercial Loan and all are designed specifically for supporting businesses. Because many of the products available possess little or no usage restrictions, Commercial Loans can be used for any number of purposes, including growth, refurbishment, smoothing out uneven cash flow, acquiring vital equipment, working capital expenses, coping with late payments or releasing equity. It’s also worth noting that Commercial Loan lenders take more factors into account, allowing you to receive funding on the back of a cash revenue, credit and debit card transactions, collateral, unpaid business-to-business (B2B) invoices, inventory or even the equity held within your unencumbered assets (equipment, machinery, vehicles or property). As such, depending on your chosen product and the purpose of the agreement, there’s no set limit to how much capital your business could borrow.

In addition, because of the various types of loans on offer, Commercial Loans tend to be more customisable than Personal Loans. So, as well as the amount you could borrow, there are short and long-term agreements available which also present you with a variety of different repayment schemes. As such, depending on the product, you could resolve the agreement using anything from Fixed Monthly Repayments, Flexible Monthly Repayments, Deferred Payments or even Interest-Only Repayments. Therefore, by looking around you could find a suitable Commercial Loan agreement that takes into account your business’ individual financial circumstances - eliminating the need to apply for a Personal Loan instead.

Need help raising funds for your business?

Although it can be a difficult and frustrating process, acquiring additional funds for your business is often vital for growth. But it’s also important that you source an appropriate financial solution that’s cost-effective as well. As such, it can be tempting to try and support your business using a Personal Loan, but this is a risky decision that can have negative long-term consequences. Fortunately, due to the rising prominence of the Alternative Finance Industry, there’s no need to take this route. By exploring what the UK lending landscape has to offer, you could find a product that matches your business’ requirements more closely. All you need to do is source the most appropriate product from the most suitable lender.

At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise capital for your business, apply for a Commercial Loan today or find out more with Rangewell.


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David Harrison

David Harrison

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