Difference Between a Business Loan & a Consumer Loan
A business loan and consumer loan have two different purposes, and they therefore have different functions, requirements and structures. A business loan is directed toward business purchases while a consumer loan is a broad definition for a personal loan directed at an individual purchase.
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Structure
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Business loans and consumer loans come in a variety of structures. They can be secured against an asset or unsecured. They also come in installment loans, which are lump sums paid back over time, and revolving debts, which are more like credit cards.
Function
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A business loan must be spent on a business item, such as purchasing, operations or marketing. A consumer loan can be spent on any number of items, including a car, vacation or home improvements.
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Examples
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One common business loan is a start-up loan, which supplies the initial capital needed to open a business. One of the most common consumer loans is the home equity loan, which uses a person's home as collateral for financing to make home improvements or other purchases.
Requirements
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Consumer loans are given on the basis of an individual's credit, assets and income. Business loans are given based on these same criteria for a business entity, and business loan lenders will also consider the business plan and financial statements of the company to source the loan.
Risks
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Consumer loans place the burden of risk on the individual borrower. In general, business loans place the burden of risk on the business entity. However, if a business loan is secured against a personal asset, then the individual borrower shoulders a significant amount of risk.
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