Here at See Business Loans, we’re experts in finding personal and indeed other forms of loans. We know the funding markets in their totality and are pleased to share the potential benefits of that expertise with our clients.
However, from time to time you might see mentioned in the markets sentiments such as “finding the best loan”. What does that mean?
A personal loan for business purposes
In some cases, it might be possible to apply for a personal loan and then use it for business purposes.
If that sounds odd, a classic use of such a technique is often in a business start-up situation or when a business has only been operational for say less than a full accounting year. In such cases, potential business finance lenders may have little or nothing to go by in terms of assessing the merits or otherwise of the business’s performance.
In these instances, while they might not be able to lend to the business as a legal entity, they may be willing to do so to you as the business owner.
Typically, personal lending requires some form of security over an asset. One advantage is that it may be the case that when you compare personal loans against business loans, the former might be more cost-attractive.
If you’re applying for a personal loan which you intend to use for business purposes, you must openly and accurately declare the intended use to the potential lender.
The use of “best”
For some, the most attractive loans might be those that might be described as “the cheapest”.
Herein lies a problem though because it can be a mistake to focus exclusively upon cost. To give just one very simplified illustration:
- one loan might bring with it a slightly higher interest rate than another meaning higher monthly repayments and if the term is the same, that means higher cost. However, the more expensive borrowing might provide you with the larger capital sum you really need.
Selecting the lower-cost loan might end up with you compromising on how much you borrow and that might starve your business of the injection of financial life blood it needs.
We recognise the need for a cost-effective solution but we always recommend a focus on the totality of your situation. For that reason, when we compare personal loans, we always operate on the basis of looking for the most appropriate products as matched against your position and requirements, rather than simply “the cheapest”. Remember, that what one person thinks is the best loan for them may not be the best loan for you.
Differences between “personal loans for business” and “business loans”
Broadly speaking, a true business loan usually involves lending to a company as a legal entity. Personal lending is, of course, lending to an individual.
In theory, this means that the directors of a LTD or PLC have limited liability for the debts incurred by the company, including loans. While this is an important distinction under law, in practice, its effects are diluted – and particularly so in the case of smaller companies.
It is not uncommon for directors or business owners to be asked to underwrite the loan their company is receiving, by personal guarantees against their own financial position and assets. So, the lines between personal and business borrowing can be blurred.
Credit history checks
If you’re applying for a personal loan or indeed acting as a guarantor for a business loan, you will typically be subject to a credit history check.
Contrary to some myth, having problems on your credit history files is NOT a showstopper in terms of you securing a loan. They may though affect how much you can borrow and how much you will need to pay for that borrowing.
Keep in mind that every time you apply for a loan and are refused, that fact is noted on your credit history files. It may adversely affect your score.
As a consequence, it’s important to only make full applications to lenders who will be receptive to your particular request. Again, that’s where we can help and we invite you to contact us for further information.