Business Loan vs. Home Loan: What's the Difference? - Fundera

Summary

You can see that there are several differences between a business loan vs. a home loan, but the major difference to keep in mind is the liability factor.

When you borrow money against the value of your home, your personal responsibility for paying back the loan (and its interest) is much greater than it would be if you secured a loan through your business.

You can see that there are several differences between a business loan vs. a home loan, but the major difference to keep in mind is the liability factor.

When you borrow money against the value of your home, your personal responsibility for paying back the loan (and its interest) is much greater than it would be if you secured a loan through your business.

Say you take out a home equity loan to finance your new clothing boutique. Business is slow, inventory isn’t moving, and the financial picture of your business isn’t looking too hot. Not only is your source of income drying up, but you’re still on the hook for the total sum of your loan. If you can’t find a way to pay for your home equity loan, your lender can (and likely will!) seize your home.

Now, if you had taken out a small business loan, the bank would seize your company’s assets to help repay the money you owe—not the roof over your head. And since you thought ahead and set up your business entity as a Limited Liability Corporation (LLC), S-corp, or C-corp, your personal assets are protected. Instead, your creditor will seek repayment through your business assets, or liens on your wages at future employers—and since you didn’t put the value of your house on the line, you won’t likely lose it if your company goes belly-up.