Bank customeres shaking hands with bank representative. Concept: Microloans vs personal loans
By: rkapur
Read in 12 minutes

Micro-business loan vs. personal loan: the best commercial lending option

When deciding between a micro-business loan vs. personal loan, you need to analyze both to make the right decision.

While both these sources of credit have several common features, you shouldn’t use them interchangeably.

Let’s examine these loan categories in detail and see which could offer greater benefits to a small business owner. Or, if you’re ready, complete an application.

Apply For A Business Loan!


What is a micro-loan?

A microloan is a business loan for a smaller sum compared to other commercial loans. In addition, some financial institutions provide micro-business loans for even smaller amounts.

If you have launched your business recently, a micro-business loan can provide the funds you need.

What other names does this type of loan have?

When applying for a microloan, you may hear it called:

  • microlending
  • microfinancing
  • micro-credit

Small Business micro-loan features

Here is a list of the main features of micro-business loans:

  • Micro-business loans are usually for up to $50,000. However, the average microloan size is $13,000.
  • The interest rate on a micro-business loan is usually higher than the rate on a traditional business loan.
  • You can use micro-business loans for practically any business purpose. For example, for working capital or to buy equipment and inventory.
  • The lender may ask for collateral or a personal guarantee.
  • These loans are for borrowers who have low capital requirements.

Camino Financial offers microloans up to $75,000 with minimal requirements. If you need more capital, we also provide small business loans.

What can you use micro-business loans for?

You can microloans to:

  • buy inventory
  • pay employees
  • make furniture and equipment purchases
  • ease commercial space
  • and more

You should devote the usage of microloan funds to your business’s greatest need.

Some lenders restrict how you can use the loan proceeds (both for a micro-business loan vs. personal loan).

What are the advantages of micro-business loans?

  • Micro-loans for small businesses help build a credit history.
  • They have more lenient requirements compared to other business loan types.
  • Businesses are more likely to qualify for funding.
  • Business loan amounts are small, and the payout time is short. That means you make payments each month without causing undue strain on finances.
  • Usually, lenders don’t ask for collateral to secure the loan.
  • Borrowers have access to capital within a few days.

What are the disadvantages of micro-business loans

  • Lenders charge higher interest rates to compensate for their risk. This increases the borrower’s repayment amount
  • If you can’t make timely payments, you damage your credit score and history.
  • Microloans aren’t available in large amounts. Consequently, you may not borrow enough money to match what you need.

Use micro-loans for small businesses when:

  • You’ve been in business for a while and only need a small amount (and you’re confident that you can repay in a few months)
  • You want to build your business credit history
  • You don’t qualify for a traditional loan from your bank

What are the general approval requirements?

A majority of lenders require a minimum credit score.

Applicants must:

  • have enough income to repay the business loan
  • be able to submit identity information
  • match lender requirements for annual sales and several years in business

Additionally, you must use the funding for business purposes.

If you have bad credit, lenders look at your business’s history and other factors. Lenders aren’t favorable to applicants that have tax liens or recent bankruptcies.

You can find secured and unsecured microloans, which may or may not require collateral.

Are microloans tax deductible?

Taxes could be an essential consideration when deciding between a micro-business loan vs. personal loan.

With business microloans, you can only claim the interests as a tax-deductible business expense.

Get a Microloan


suited person giving dollar bills

What is a personal loan?

A personal loan is a financial product that allows you to use the funds for any personal purpose.

When you apply for personal loans, the lender won’t consider your business’s cash flow or performance. Instead, it would consider your personal credit and your personal income.

That’s why it’s such a good alternative for startups and solopreneurs.

If you have poor credit or a level of income that does not meet the lender’s specifications, your chances of getting a personal loan approved are low.

What other names does this type of loan have?

  • installment credit
  • consumer loan
  • participation loan

Personal loan features

Here is a list of the main features of personal loans:

  • You can use the best personal loans for almost any purpose. The lender will not check how you deploy the funds. That means you can use them to start a business or strengthen your startup.
  • These loans usually don’t require you to put up any collateral.
  • The lender might not approve your personal loan application if you have poor credit.
  • Personal loans usually don’t exceed $50,000. Getting a significant amount depends on your income level and your personal credit score.
  • Interest rates on personal loans can range from 5% to 23% or even higher. The rate would depend upon the borrower’s personal credit score.

Do understanding these features help you decide between a micro-business loan vs. personal loan?

What can you use personal loans for?

Personal loans offer flexible use of funds. In other words, you can use them for almost anything.

So, you can use a personal loan to pay for direct business expenses like:

  • startup or emergency expenses
  • consolidate debt

Before you apply for an online personal loan, just make sure to know the use-of-proceeds restrictions. Also, keep in mind that you are personally liable if you don’t repay the loan, not your business.

What are the advantages of personal loans?

  • Some lenders can still approve the personal loan if you don’t have a personal credit history or score.
  • Your credit score should increase within 3-6 months if you make timely payments.
  • Personal loans are usually unsecured (no assets required).
  • Personal loans tend to have a shorter repayment term.
  • Many personal loans require minimal documents, which accelerates funding to a few days.
  • Borrowers can use personal loan proceeds for various purposes.
  • Personal loan interest rates tend to be higher.

What are the disadvantages of personal loans?

  • Poor credit applicants receive the highest rates, making it harder to make payments.
  • Lenders can charge 1% to 6% origination fees or a prepayment penalty when paying off the loan early.
  • For anyone that routinely overspends, personal loans can create a debt cycle.
  • Borrowers with seasonal income may not be able to commit to a longer-term or make payments on time.

Use a personal loan when:

  • Your business is new, and you can’t provide the required documentation for business loans.
  • You have a high credit score and enough personal income.
  • You’re confident that you will be able to separate your business accounting records from your personal transactions.

What are the general approval requirements?

Most lenders ask that applicants:

  • be of legal age
  • have a checking account with a favorable credit history
  • have enough income to repay a loan
  • they may also require a minimum credit score and annual income

Some lenders only approve loans to permanent residents with a social security number.

Lenders look at an applicant’s debt-to-income ratio to verify there’s enough money to repay a loan.

Are personal loans tax deductible?

The interest may or may not be deductible depending on how you use the loan proceeds. When used for your business, the interest you pay should be tax-deductible.

Check with your accountant before filing your tax return if you aren’t sure.

Micro-business loan vs. personal loan: similarities and differences

This Venn diagram will help you to compare the features between a micro-business loan vs. personal loan:

micro-business loan vs. personal loan venn diagram

Get Approved For A Loan Today

When should you use a microloan and when a personal loan?

Should you turn to a micro-business loan vs. a personal loan if your business requires money?

To answer this question, you would need to consider several factors.

Is your business new?

As a general rule, business lenders will require you to have been at least 2 years in business.

Camino Financial will only ask for 9 months.

This means that people who want to start a business or have a relatively new startup cannot apply for micro-business loans.

But personal lenders don’t have this requirement.


It isn’t a good idea to mix your company’s money and your own. There are risks to commingling, which is the practice of mixing your own cash with your firm’s money.

If you use a personal loan for your business, the likelihood of commingling could be higher. This means that you need to be more careful with the money to avoid problems when you file your taxes.

When deciding between a micro-business loan vs. personal loan, you need to be sure you can keep your finances in order.

The amount you need

There’s another angle to consider. If you opt for a personal loan to meet your business requirements, you could only raise limited funds.

That’s because the lender will set the personal loan limit based on your personal income and credit score and not on the potential that your business holds.

The bottom line

There’s no right or wrong answer in the micro-business loan vs. personal loan debacle. It depends on all the factors stated above and your needs.

Fortunately, there is a lending product with all the advantages of a business loan and all the freedom of personal loans.

Keep reading: Average business startup cost.

The best of both worlds

At Camino Financial, we know how difficult it can be to get financing for your new business venture.

Deciding between a micro-business loan vs. a personal loan can be rather stressful too.

That’s why we came up with a financial product that has the best aspects of both personal loans and micro-business loans.

Our Solopreneur loan can offer you from $1,500 to $7,500. You can use it to start a business, fund a startup, or pay for business expenses.

  • We won’t ask you for X minimum months or years in business.
  • We won’t check your business credit score.
  • The application process is straightforward and uncomplicated.
  • If you don’t have an SSN, you can apply with your ITIN.
  • Even better yet, you can get your funds in 2 days!

You need:

  • At least $1,500 in monthly income
  • A bank account (active for at least 6 months)
  • Current with outstanding debt

It’s that easy.

Not sure if you should get a micro-business loan vs. personal loan? Get a Solopreneur loan instead!

Apply For A Solopreneur Loan!


business owners shaking hands with lenders

So, what’s your best option as a small business owner?

If your firm requires funds as soon as possible, a loan from Camino Financial could be your best option. We designed our credit appraisal procedure, keeping our motto, “No business left behind,” in mind.

We offer microbusiness loans for up to $75,000 and Solopreneur loans for new businesses up to $7,500.

It’s easy to qualify for a Camino Financial loan:

  • You don’t need a minimum credit (FICO) score.
  • Even loan applicants without a credit history are eligible to apply.
  • New businesses or people wanting to start one can qualify.
  • Your monthly gross sales should be $2,500 for a micro-business loan.
  • Your monthly gross income should be $1,500 for a solopreneur loan.
  • We don’t ask for collateral.

Prepayments don’t attract penalties with Camino Financial.

If your business requires funds, apply for a loan.

It takes just a few minutes to complete our form, and you’ll know immediately if you prequalify.

You could have the funds you need in a matter of days.

Apply now!



How do you get a loan?

The more professional and prepared you are, the better.

Make sure you complete the application entirely and accurately. Gather supporting documents in advance. For example, business financial statements, tax returns, and copies of licenses.

Businesses with a sound financial history have a better chance of getting approved, whether they choose a micro-business loan vs. personal loan.

How do you calculate interest on a loan?

To calculate simple interest, use this formula.

Multiply the principal (loan amount) times the interest rate times the loan term (length of loan). For example, the interest on a $5,000 loan for 3 years at 18% is $2,700 (total interest for 36 months).

How do you get a loan with no credit or bad credit?

You must find a lender that accepts no credit or bad credit applicants and expect to pay a higher interest rate in the 30% to 36% range. Also, you could offer collateral and apply with a co-borrower.

Think twice before applying for payday and car title loans. They are extremely risky financing options.

Are there any other alternatives to debt financing?

If neither micro-business loan vs. personal loan convinced you, you still have other alternatives.

You can receive financial help from investors willing to offer cash in exchange for your business’s equity. Along with financial support, investors share business knowledge.

A smart way to access free capital is through a grant program since eligible applicants aren’t required to repay the grant.

You can also get cash from friends and family members and use credit cards.


Check if you
qualify for a loan