Here at ScotPac, we tailor a range of different business finance solutions for our clients, including: Business Loans to provide fast funding for growth, Invoice Finance to help unlock the value held in unpaid invoices, and Asset Finance to facilitate the purchase of new or pre-owned assets.
The right finance solution will depend on your business’s goals, needs, and eligibility. However, if you are considering business loans, you may be wondering whether a personal business loan is a viable alternative to a traditional business finance solution.
Is A Personal Business Loan the Right Choice for Your Business?
A personal business loan is a type of financing where you borrow money for business purposes using personal assets and creditworthiness.
Why might this be a useful solution? If you are a new business or start-up without at least 6 months of trading history, qualifying for a traditional business loan or other financial solutions can be challenging. However, maintaining adequate working capital and a healthy cash flow is crucial for sustainable business success.
If you would like to explore other avenues for increasing your cash flow, read our article on creative capital raising strategies for businesses.
Business Loans vs Personal Business Loans
While both business loans and personal loans can be used for business purposes, there are key differences between the two.
Traditional business loans are designed for business expenses, with the loan terms, interest rate and limits based on the company’s creditworthiness.
Personal business loans, on the other hand, are more similar to personal loans used for business purposes rather than traditional business loans. They rely on personal creditworthiness rather than the business’s financial standing, which can make them easier to obtain. However, they often come with lower borrowing limits, shorter terms, and higher interest rates.
Understanding the Utility of Personal Business Loans
Personal business loans can be used for a variety of purposes but are most typically used for financing the start-up costs associated with a new business. This can include purchasing equipment, workspace, covering initial operating expenses, payroll or marketing costs.
Small and medium sized businesses looking to expand might also make use of a personal business loan to help facilitate the development of a new service offering or product, fund trade agreements or simply expand their market presence.
Should your business consider a personal business loan? It is important to understand that these loans are best suited for businesses without an established credit history due to limited trading experience. Similarly, new businesses without sufficient assets for collateral may be more inclined to use personal assets to secure a loan. It is also primarily a short-term financial solution designed for situations requiring quick access to funds.
Comparing Funding Options
The Difference Between Personal Business Loans vs. Invoice Finance
There are many ways in which small businesses can benefit from using Invoice Finance. This financial solution allows businesses to access in advance the value of issued and outstanding invoices without having to wait on customers to settle their accounts.
Invoice Finance is a scalable and quick cash flow management solution but may not be suitable for all businesses. Only businesses operating in the business-to-business (B2B) space, rather than business-to-consumer (B2C), are eligible. Additionally, most financial institutions require a minimum of 6 months of business operations to qualify for Invoice Finance.
In these cases, a personal business loan may be a more workable solution for start-up and new businesses who have yet to build up their creditworthiness or have suitable unpaid invoices which to finance.
The Difference Between Personal Business Loans vs. Asset Finance
Asset Finance is typically used to fund the purchase of equipment or vehicles, whether new or pre-owned. Alternatively, businesses can leverage the value of assets they already own to free up capital for growth by borrowing against high-value assets such as machinery or specialised equipment. With Asset Finance, there is no need for security in the form of personal property or other assets as the new asset being financed itself serves as collateral. Additionally, Asset Finance allows for both effective cash flow management and potential tax benefits.
However, Asset Finance is specifically designed for purchasing business assets. For small businesses and start-ups, a personal business loan may provide greater flexibility in fund usage and faster approval times. If securing collateral is a challenge, an unsecured loan may be a more suitable alternative.
Choosing the Right Option for You
The lending specialists at ScotPac are experts in helping SMEs overcome common challenges in securing business finance.
Personal business loans can be the right choice for startups and new entrepreneurs who are looking for quick access to funds but do not have the established credit history to be eligible for business loans.
If your business is established and has six-months or longer of strong trading history, we recommend considering Invoice Finance, Business Loan, or Asset Finance depending on your needs.
The stronger your creditworthiness, the more favourable your loan terms, interest rates, and borrowing limits will be.
How ScotPac can help
At ScotPac, we believe our clients are more than just transactions – they are our partners. That’s why we invest the time and effort to understand your business goals and tailor the right solution for you.
As Australia’s largest non-bank lender, we support over 8,500 businesses, making us a trusted partner for SMEs nationwide. Plus, we have over 35 years of experience providing a range of customisable business finance solutions to unlock growth and help our business fuel the growth and achieve the success they need.