Learn the Differences Between Personal Loans and Business Loans

Learn the Differences Between Personal Loans and Business Loans

While common sense may imply that a business loan is the best decision when financing your business, personal loans persist to be a prominent and viable solution for your situation. As with any business move, all approaches have both advantages and disadvantages. Weighing your business and personal priorities and reviewing potential outcomes and consequences is critical before you jump in.

What you want to know about a business loan

Business loans will effectively differentiate your business and personal resources, which is especially necessary as your business or company grows. Based on the individual loan, in case of business failure or other financial problems during the loan term, business loans may limit your personal liability.

Business loans may result in more limitations on what they can be utilized for, such as using the money for transactions related to the company or business. These may include upgrading equipment and technology, buying new stock, renting retail space, hiring new staff, marketing your company, and even covering your daily business expenses.

Personal loans explained simply

Generally, personal loans can be used for anything. Though lenders may question the purpose of your request, in most situations, when you take out personal loans, you do not have to commit to spending your personal loan funds on anything.

It is usually easier to obtain personal loans than business loans. While personal lenders normally only look at your credit score when determining how and when to lend to you, business lending institutions will take a gander at your personal credit, business credit, business plan, and a multitude of other financial reports and business records.

Things to keep in mind when using a personal loan

One of the drawbacks of using a personal loan for business is that there are frequently lower lending limitations and higher interest rates. With the use of a personal loan, you may not be able to acquire all the cash you need. And higher interest fees can also weaken your profit ratio.

In turn, you deprive the company of a chance to build its own equity by using a personal loan for business reasons, which can assist you in accessing more funding options as the company grows. Even, when using a personal loan, your personal credit can take a big hit if the company declines. It can be tough to recover from a failed company and a poor personal credit score. Both kinds of lending options have pros and cons but depending on your business and situation you will be able to choose the option the works best for you.

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What is a corporate loan?

What is a corporate loan? 

When we talk about corporate loans, this is a similar concept as personal loans. The only difference between these two is that corporate loans are made from a bank to a company, whereas personal loans are from a bank to an individual. In this case, corporate loans deal with substantially larger sums of money that, to an extent, need protection. Different forms of corporate loans exist; these are structured finance, asset-based loans, and cash flow loans.

Asset-based loans are debt secured by some kind of valuable collateral. Mortgages are popular asset-based loans for personal debt financing. However, lending companies are most likely to use any expensive asset, whether it’s real estate, intellectual property or company-owned equipment. Asset-based loans tend to be more secure since the lending company has protected itself by ensuring there is a balance between the amount of the loan to be given out and the value of the asset.

For structured finance, different loan forms exist that have structures in place to make an attempt at minimizing risk. For instance, the tranching form has different securities that are further classified into segments mainly to allow different investment groups to get an idea of the risk profile of the loans.

The structured corporate lending form employs different securities like credit derivatives, collateralized debt obligations, and asset-based securities that are usually backed by government notes and collateralized funds. Every kind of security has its own sub-classes, but the entire thing can, at times, get rather complicated, but then, the idea here is to lower the lenders’ risk.

A corporate loan can, at a times, take the form of an investment termed as a straight cash flow loan to help maintain the liquidity of a business. It is said to be the most vulnerable lending form in the market as it is unsecured by any real guarantee. Learn more about these loans before you decide on the best option to go with.

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Learn the difference between term and working capital loans

Learn the difference between term and working capital loans

Differentiation between a term and a working capital loan has been something of concern to many businesses at large. A lot of business operators can all at once be hit by the need for financial support to develop their business. So, there is a need for a business operator to set aside the financial resources that will help acquire the funds required to make improvements in the business. Thinking about these loans is an essential factor in an entrepreneur’s business plan & ongoing operations. However, there are some differences between these two types of loans; herein, you will learn about them to enable you to make the right decision whenever you need funds for your projects.

Working Capital Loan

This is a business short term loan that needs to be repaid, typically, at a period of between three to four months. It was designed basically to cover regular expenses and other day to day operations. This means that you will be given a sum of money based on the total costs of running your business. Working capital loans accrue higher interest rates than average since the total borrowed amount can be very low. This type of loan can be taken out several times since the time period for repaying the loan is so short.

Term Loan

This can be termed as a long-term loan as it can be repaid in up to five years. The loan has been designed to cover all expensive investments that are deemed to make a rise in revenue attained over time. The amount issued for this type of loan is based on projected investment return that can, at times, get into the millions of dollars.

Business operators have these two fixed finance options to raise money for their projects. The methods of payment may require collateral, and charged interest rates could be either variable or fixed, everything depends on the lender you borrow from. Learn the difference so that you can go with the right option.

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Can a corporation get a tax refund?

Can a corporation get a tax refund? 

Corporations and tax refunds, do the two mix?

Do the two mix? Yes, but it depends on the business and situation. The tax circumstances are a large factor. C-corporations are the ones that usually get a tax refund.

The reason c-corps get the refund is due to the exemption status. C-corps are taxed separately from the ownership. The owners have a separate tax exemption under the Chapter C code for the IRS.

Say the C-corp pays more taxes during the year. Sometimes the company overpays when it comes to their payroll and sales taxes. That will qualify the company for a refund, depending on how much they overpaid.

How do I know if I get one or not?

The first thing you need to do is look at the type of corporation your company is listed under the tax code.

There are certain situations when the refund will pass through to the owner.

1) Are you the sole owner of the company? The listings will appear under the Schedule C. You will get a 1040 tax form in the mail and online. I suggest you double-check with your accountant to make sure you will get a refund.

2) Do you have a partnership with someone? The partnership must include at least two or more people. The partners get a K-1 form. You will get a 1065 form. You might be eligible for a refund based on what you report on the forms.

3) You might be eligible if you have an LLC partnership, for which you will also get a 1040 form.

4) The other eligibility requirement is with an S-Corporation. You will get an 1120S form, and the other people will get a K-1.

These are examples of company structures for which you could be eligible for a refund. I encourage you to go online and check out the tax code for additional information.

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Does Owning a Business Help with Taxes?

Does Owning a Business Help with Taxes?

Because of the internet and the digital age, starting a side business to help pay the bills has never been easier. This motivates people to start their own business to try and get ahead. However, make sure your motives are as clear and innocent as this. It is not a good idea to create a company or shell of a company only to get a tax deduction. If you truly have wanted to become an entrepreneur, then a side business may be the ticket, besides providing a tax advantage. For details, make sure that you speak with a tax advisor or a Certified Public Accountant.

There are rules about recording losses for a side business. First, the IRS requires you to start the business intending to make a profit. Further defined, you must make a profit for three of five years; this will show the IRS your goal is to turn a profit. There are legitimate businesses that suffer losses for many years. If you feel your business won’t make a profit for years to come, then you should consult a tax advisor going forward.

Second, show the significance of your side business. Examples of this include detailed financial records, a bank account only for your business, and a current business plan. You should also keep records to show your time and effort going towards the business.

Third, you need to show the legal structure of your business. Examples include a sole proprietorship, an LLC, an S Corporation, and/or partnership. You can use any entity and still take a loss on your personal taxes, including incorporating your business.

There are things to keep in mind with whichever structure you choose. You should maintain separate records for your business and personal finances. Lastly, have a solid understanding of how your decision will affect your taxes. If you want to pursue your dream, play by the rules and know your legal obligations.

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