Business loan vs personal loan: which is right for your business?

• Cash flow challenge: 

  Entrepreneurs and sole traders often need quick funding to cover business costs but aren’t sure whether a business loan or a personal loan is the better option.

   

• Perfect for: Sole traders, freelancers, and small business owners exploring different finance routes to fund start-up costs, equipment, or working capital.

Novuna helps businesses and self-employed professionals access flexible finance solutions built around their needs, whether that’s a dedicated business loan or a personal-style facility based on turnover.

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Understanding business and personal loans

Before deciding between a business or personal loan, it’s important to understand how each type of finance works and the impact it can have on your credit profile, repayments, and long-term financial planning.

Business loans

A business loan is designed specifically for company-related costs, such as buying stock, funding expansion, or managing cash flow. It’s usually taken out in your business’s name, with repayment terms based on trading history and turnover.

Personal loans

A personal loan is taken out in your own name and can technically be used for almost any purpose including business expenses. However, using a personal loan for business can expose you to higher risk, as repayments affect your personal credit history.

Key differences between business loans and personal loans

When to use a business loan

A business loan may be the better option when:

• You need funding specifically for operational or growth purposes.
• You want to separate business and personal finances.
• Your business has a steady trading record or turnover.
• You want to build your business credit profile for future borrowing.

Examples:

• Buying new equipment through asset finance.
• Funding cash flow gaps with working capital loans.
• Expanding operations or hiring staff using a business loan.

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When to use a personal loan

A personal loan might be more suitable if:

• You’re just starting your business and haven’t yet built a trading history.
• You need a smaller, short-term amount for start-up costs.
• Your lender doesn’t offer small business loan facilities.
• You’re comfortable managing repayments from your personal income.

Examples:

• Funding initial marketing or website design costs.
• Covering start-up equipment for a sole trader.
• Paying franchise entry fees before your business launches.

Advantages of business loans

• Tax efficiency: Interest can often be claimed as a business expense.

• Larger funding capacity: Borrow based on business performance, not personal income.

• Professional credibility: Builds a business credit record for future lending.

• Flexible repayment options: Align payments with trading cycles.

Advantages of personal loans

• Faster access: Quick approvals with minimal documentation.
• No trading history required: Ideal for new or pre-launch businesses.
• Simpler applications: Based mainly on your credit score and income.
• No collateral required: Most are unsecured.

Risks and considerations

Using a business loan

• You may need to provide a personal guarantee if you’re a sole trader or director.
• Application reviews can take longer.
• Defaulting can still affect your personal credit in some cases.

Using a personal loan

• Blurs the line between personal and business finance.
• High-interest rates may apply for bad credit.
• Missed payments can impact your ability to access future loans.

Business loan vs personal loan: quick decision guide

How Novuna Business Cash Flow can help

We’ve can help thousands access funding based on their needs - get in touch with our experts today and we will find a great fit for your situation.