Is there a different between the small and large ship other than size? Liril took out a 100,000 gold bank loan and bought the small ship as that was the max amount of gold they would give her, but now I'm wondering if there will ever really be a practical reason to upgrade to the larger ship?

No difference that matters. Unless you dislike bankers, and are strictly using cash, in which case, the larger ship takes more weight out of your inventory!

In that case, I think I will keep the cute, smaller ship this time around! I don't have any dislike of bankers (despite them often wanting my characters to kill someone for gold) considering Liril now owes the Bank of Daggerfall over 100K gold for this purchase.