Consumer vs. Business Purpose Loans
There are many different kinds of loans you can get. Two kinds of loans that are often confused with each other are consumer and business purpose loans. Read the following to understand the unique differences between the two, so when deciding between a consumer vs business loan, you will be prepared!
Consumer Purpose Loans
Consumer Purpose loans are defined as loans for personal, family, or household purposes. Such loans include but are not limited to loans for:
- Improving a principal residence.
Consumer Purpose Loans also include purchasing a vacation home, personal vehicle, boat, as well as other consumer goods for personal use. They are often used to refinance or consolidate debt from credit cards, for education expenses, vacations, or medical expenses.
Business Purpose Loans
People use Business Purpose loans to purchase an investment property or a cash-out refinance where the funds are used for any business purpose.
The property collateralized can be owner-occupied or non-owner occupied as long as the funds are used for investment/business. Such loans include but are not limited to:
- Loans to purchase, repair or improve a property for the Borrower’s business
- Loans to acquire, improve, or maintain a non-owner occupied rental property
- A purchase for the improvement or repair of tools, equipment, machinery, fixtures, or furnishings used in the Borrower’s business
- For operating capital e.g., employee salaries
- A purchase for business inventory, supplies, rent, taxes, insurance, and other related expenses; or to payoff, refinance or consolidate business debts
Consumer vs Business Loans
- A general concept to remember is that if the borrower is using the money for some sort of plan to generate income, then the loan is a business purpose loan, but if the money is only for personal use then the loan is a consumer purpose loan.
- Both consumer and business loans are either secured (backed by the assets of the borrower) or unsecured (not backed by the assets of the borrower).
- A consumer loan often requires a credit report, pay stubs, or tax returns. With a business loan, credit reports for the business are accessed.