Personal Funding Versus Business Funding: What’s the Difference?

  • June 20, 2021
  • Written by : Elizabeth Beall

There will always be a need for additional capital when owning a business, from new equipment purchases, to payroll, to managing day-to-day operations.

When owning a business, the last thing an owner wants to do is give up that ownership, thus most try to avoid investors or any funding option that requires him or her to give up equity.

At this point (the point in which you must seek capital, but refuse to give anything up) you have two choices: small business funding or personal funding. This leads us to answer two very important questions:

  1. What is the difference between small business funding and personal funding?
  2. Which form of funding is better for you and your business?

Let’s dive in.

Similarities between Business Funding and Personal Funding

Both require good personal credit history

No matter the reason you are choosing to borrow capital, your lender or bank will mostly just be interested in how you will repay the borrowed amount. The better your personal credit history, the more believable, reliable, and smart you seem. If you can present strong credit history for both your business and personal accounts, you are immediately seen as a viable candidate for funding.

Both offer many different options

In business funding, the more common options are small business express funding, merchant cash advances, invoice financing, business credit lines, and equipment financing.

With personal funding, most business owners opt for one of the following options: unsecured or secured loans, debt consolidations, or personal lines of credit.

To see all of our funding options available for your business, see here.

Both are typically provided by a lender or bank

For the most part, business owners tend to lean toward lenders when borrowing capital, solely due to the fact that he or she is able to form a working relationship with them. By securing funding with a lender, you are also opening up many other opportunities to learn and grow in your industry.

Banks and lenders alike will be able to provide you with countless resources and financial advice.

Both require interest rates

Unfortunately, both forms of funding require you to pay back the borrowed amount, plus interest. Think of this as a ‘we’re counting on you’ fee. The longer you hold or use the money provided by your lender or bank, the longer the interest rates will add up.

At REIL Capital, we offer low rates and good terms. If you’d like to apply for one of our funding options, apply here.

Both require a financial plan prior to applying

Just as providing strong credit history makes you a better candidate, providing a financial plan does as well. Giving proof as to how you will acquire, use, allocate, and repay your working capital allows your lender to see the bigger picture; lending is basically an investment — they are investing in you, so it makes sense for lenders to need a written plan as to how they will make their money back.

Both build your credit

Thankfully, no matter which you choose, both will benefit you so long as you complete payments on time and use the borrowed capital wisely. This is an important note for those who are just beginning their time of owning and operating a business.

Differences between Business Funding and Personal Funding

Business funding may require collateral

Notice the word ‘may’ here, as not all business funding requires collateral. More than likely, this will be asked if the lender provides lower rates, or if you do not have a good-standing in your financial background. Collateral simply enhances your ability to receive funding.

Personal funding on the other hand will not require collateral because most are unsecured, meaning additional assets are not necessary when applying.

You have a higher chance of approval with personal funding

Most business owners seeking personal funding are in the building blocks of business or just starting out. Frankly, if you are in this stage of business, you haven’t had much time to mess up, so lenders can trust you a bit easier.

Choosing business funding may benefit you during tax season

Everyone always says “keep business and personal separate.” Whether you are a C-Corp, LLC, or other, opting for business funding rather than personal funding can benefit you… mostly during tax season!

Personal funding can be received faster than business funding

With personal funding, less time and effort is involved. Both the application and documentation process will be simplified, and can therefore be reviewed and approved or rejected in a quicker time frame.

Our application is as simple as it gets. It only takes 3 minutes. Apply here now.

How to Know if Business Funding or Personal Funding is Better for You

Determining which funding option is best for you, whether business or personal, is not an overnight decision.

Carefully review the information presented here, define your true needs for funding and how you will apply the capital once received, calculate your eligibility by diving into your credit history and ability to pay back the capital, and do not hesitate to ask us for financial advice.

Once you’ve decided, we’d love to hear from you. We have a team of financial experts ready to meet you and help you grow!

Contact us today for more help or direction.

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