Choosing between a consumer loan and a commercial loan for your business is important. But how do you know the difference? As with any decision, you must weigh the pros and cons, reviewing the benefits and shortcomings of both options. We’re here to help clarify that decision for you. First, let’s define a few things:
A commercial loan is used by companies to buy equipment or grow a business.
A consumer loan is used to finance automobiles, home remodels, and other items for personal use.
As you’re working to decide between these loans, think through it with a little “TLC” – taxes, liability, loan amount and credit.
Taxes – Depending on the type of business you have and purchase you are making, you may be eligible for certain tax benefits if you take a commercial loan. We always recommend speaking with your accountant or financial advisor about the specifics of your purchase to understand the tax benefits available to you.
Liability – Taking a commercial loan for your business can protect you from credit liability, should something happen to your business. Commercial loans also are generally associated with commercial insurance policies, putting the property and casualty liability on the business. With consumer loans, credit and insurance liabilities fall solely on the individual listed on the contract.
Loan Amounts and Terms – Commercial loans and leases typically finance larger sums of money. They also offer more flexible terms, like making seasonal payments, deferred payments or balloon payments at the end of a lease.
Credit – We’ve listed a lot of pro’s for commercial loans. However, commercial loans can be harder to obtain than a consumer loan. Banks collect a wide range of information when determining your eligibility for a commercial loan, like business credit, personal credit, time in business, and type of business. However, should you choose to pursue a consumer loan due to credit limitations, your business will never have the chance to build that credit, making it harder in the long run to secure a commercial loan. This is where working with a financial partner like Priority One can help. You benefit from financial experts who will bring your information to the right lenders that are more likely to approve your commercial application based on your unique circumstances.
Most large businesses go by the “business for business use, personal for personal use” rule of thumb. But for small business and sole proprietors, it is not quite that easy. Weigh your options, consider the TL(L)C, and if you still have questions, give your team at Priority One a call. We would be happy to work through your options with you.
This breakdown between commercial and consumer loans is very insightful, especially for small business owners who might be grappling with which option fits their unique circumstances. I especially appreciate the TLC framework — it's a great way to keep important considerations like taxes and liability at the forefront when making these critical decisions. For those small business owners who might not qualify for a commercial loan right away, there are alternative financial solutions to help cover immediate needs without impacting business credit too heavily. Services like Mypaydayloansonline offer installment loans to funds for business-related expenses in the short term, while you work on building credit for larger commercial loans in the future.