Short answer: a personal loan is your own debt, in your name, whatever happens to the business. A business loan is made to the business, but the owners may still have to guarantee it personally. Compare both by their total cost, ask the lender whether business use is allowed, and keep business and personal money in separate accounts.
Who owes the debt
- Personal loan: you sign as an individual, so you owe the full amount even if the business closes.
- Business loan to an LLC: the IRS notes that members of an LLC are not personally liable for its debts (IRS Publication 583). A personal guarantee changes that for the loan you guarantee.
- SBA-backed loans: holders of at least a 20 percent ownership interest generally must guarantee the loan, and the lender may ask others to guarantee it too (13 CFR 120.160(a)).
A guarantee means you can be asked to repay if the business does not. Read any guarantee as closely as the loan itself; the cosigning guide explains what promising to repay someone else's debt can mean. To see what is reported in your name, see how to check your credit report.
What SBA programs are
The SBA guarantees loans made by lenders; it does not make 7(a) loans directly to borrowers (SBA 7(a)). Its main programs, as the SBA describes them:
- 7(a) loans: the SBA's main program, with a maximum loan amount of $5 million (SBA).
- 504 loans: long-term, fixed-rate financing for major fixed assets, made through Certified Development Companies; they cannot be used for working capital or inventory (SBA).
- Microloans: loans up to $50,000 made through intermediary lenders to help small businesses start up and expand (SBA).
The SBA's loans page compares the programs (SBA loans); eligibility and terms are set by each program and lender.
Disclosures differ
Truth in Lending rules do not apply to credit extended primarily for a business, commercial or agricultural purpose, or to credit extended to a business entity (12 CFR 1026.3(a)). So a business loan may not come with the APR and total-of-payments disclosures you get on a personal loan. Ask for the APR, every fee and the total you will repay in writing. If you plan to use a personal loan for a business, ask the lender whether its terms allow business use.
Example: $15,000 over 24 months
This example borrows $15,000 for 24 months at 11.90% APR, the Federal Reserve's August 2026 average for 24-month personal loans (G.19). It assumes no origination fee. Your rate may differ.
| Amount | Term | Monthly payment | Interest | Total paid |
|---|---|---|---|---|
| $15,000 | 24 months | $705.40 | $1,929.60 | $16,929.60 |
$705.40 x 24 = $16,929.60, and $16,929.60 - $15,000 = $1,929.60. Work out a business loan's offer the same way, adding every fee, and compare the totals. The origination fee guide shows how a fee changes the cost.
Keep business and personal money apart
The IRS advises opening a business checking account when you start a business and keeping it separate from your personal checking account, and noting whether each deposit is business income, personal funds or a loan (IRS Publication 583). If you put personal loan money into the business, record it as a loan or as money you put in, and keep the loan statements.
Questions to ask before you borrow
- Does this loan allow business use, and who is the borrower: me or the business?
- Will I have to sign a personal guarantee, and for how much?
- What is the APR, what fees apply, and what is the total of payments?
- Can the payment be made from my personal income if the business earns less than planned?
This guide explains federal rules and SBA programs in general terms. It is not legal or tax advice.
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Sources
- IRS Publication 583: Starting a Business and Keeping Records (December 2024)
- 13 CFR 120.160: SBA loan conditions, (a) personal guarantees
- U.S. Small Business Administration: Loans
- U.S. Small Business Administration: 7(a) loans
- U.S. Small Business Administration: 504 loans
- U.S. Small Business Administration: Microloans
- Regulation Z, 12 CFR 1026.3(a): exempt business, commercial, agricultural or organizational credit
- Federal Reserve: G.19 Consumer Credit (released October 7, 2026), terms of credit, August 2026: credit card plans and 24-month personal loans
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.