Can you use a personal loan for your small business?

That’s where personal loans come in. These types of loans are taken out by you as an individual, which means the finances of your business are not a concern. Instead, your ability to repay your loan and your creditworthiness are what lenders take into account.

Can I actually use a personal loan for business?

Yes, you can use a personal loan for your business needs. Personal loans can typically be used for any legitimate reason, including financing a business.

However, you should consider the conditions a personal loan could come with. The biggest one is that your name – not your business’ name – is attached to the loan. This means as an individual, you are liable for the loan and will have to pay it back in full, whether that’s from your personal bank account or your business account. Personal loans also rely on your personal credit score to determine the loan terms and interest rates that you’re eligible for.

What do I need to qualify?

To get the most competitive personal loan, you’ll generally need to have a credit score of 650 or higher, which usually means your credit rating is good to excellent. Applying is fairly easy, although it will vary between providers. You can usually apply online, over the phone or in-person if the lender has physical branch locations.

When applying for a personal loan for business, have the necessary information handy, including your personal information, employment information and financial details. Depending on the lender, your application could take as little as five minutes to complete.

Are personal loans used for business expenses tax-deductible?

No, since you’re using a personal loan, the interest is not tax deductible. Interest paid on personal loans is not tax deductible in Canada, since you’re using the funds for personal purposes.

Interest paid on loans is usually only tax deductible if it’s used for generating income (and it meets the CRA’s eligibility requirements). So if you took out a business loan to fund your small business expenses, you’d be able to deduct the interest from your business income. All interest that your business pays to finance its operations is usually tax deductible.

So, is it a better idea to take out a business loan?

Since you’re able to deduct interest from your business income on your taxes, you will potentially save some money by choosing a business loan instead of a personal loan. That said, you’ll want to compare whether you’re actually eligible for a business loan – since the eligibility requirements can be harder to meet than a personal loan – and you’ll want to make sure you can get favourable interest rates and terms.

Compare both business and personal loan lenders to see which offers a lower APR and more competitive loan terms. You’ll then be well placed to make an informed decision that will save you money and provide you with the financing you need.

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Name	Product	Interest Rate	Loan Amount	Loan Term	Minimum Revenue	Minimum Time in Business	Loans Offered
SharpShooter Funding Business Loan		Fee based, prime starting at 6.33%	$4,160 - $150,000	3 - 24 months	$9,666 /month	100 days	Unsecured Term, Merchant Cash Advance, Invoice Factoring	To be eligible, you must have been in business for at least 100 days with a minimum of $9,666 in monthly deposits. SharpShooter provides capital to small businesses that are underserved by banks and credit unions. It measures overall business health and potential rather than focusing strictly on traditional metrics. Fill out a simple application and get pre-approved in minutes. Receive your funds within 24 hours.	Go to site More Info	Compare	loading Fetching your data...
OnDeck Business Loan		8.00% – 29.00%	$5,000 - $300,000	6 - 18 months	$100,000/year	6+ months	Secured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000. OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.	Go to site More Info	Compare	loading Fetching your data...
Loans Canada Business Loan		6.60% - 29.00%	$4,000 - $500,000	3 - 60 months	over $10,000/month	100 days	Unsecured Term	To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year). Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.	Go to site More Info	Compare	loading Fetching your data...
Merchant Growth Business Loan		12.99% - 39.99%	$5,000 - $500,000	3 - 12 months	$10,000 /month	6 months	Unsecured Term, Line of Credit, Merchant Cash Advance	To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales. Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.	Go to site More Info	Compare	loading Fetching your data...

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Pros and cons of using a personal loan for a small business

Alternatives to using a loan

• Investors. Angel investors and venture capital investors can provide financing in exchange for a portion of your business. However, this type of funding carries its own risks and rewards – including giving up a portion of your business.
• Credit cards. Personal and business credit cards could be a means of getting the financing you need. Plastic can be especially useful if you’re looking to make a big purchase. However, it can also be risky since you don’t physically have to hand over the money, and you may only realize what you’ve spent when you see the balance on the card statement.
• Grants.Grants are available for many types of businesses and business owners, especially recent grads, entrepreneurs, women and minorities. Look into possible government grants and see if you’re able to secure any additional funding.
• Bootstrapping. Financing may not be necessary if you’re in a position where you can save up the money you need and fund your business with cash as it grows.

Bottom line

There are definite benefits to personal loans for business use, depending on your situation. Startups and business owners who only need a few thousand dollars of funding may find a personal loan better suited since they’re easier to apply for and provide fast funding. But business loans can help you build your business credit and the interest paid is tax deductible through your business income.

Before you apply for a loan, take the time to compare your options in order to find the best loan for your needs.

Frequently asked questions

• Do I need a business plan to get a personal loan for business use?

  No, you don’t need a business plan in order to get a personal loan for business use. Personal loans rely on your personal finances and qualifications, not those of your business. Your credit score and your ability to repay your debt will play important roles in the approval of your loan.

• Can I get a personal loan for business use as a sole proprietor?

  Yes. In fact, as a sole proprietor, you might find it easier to get personal loan than a business loan since your business has no separate existence from you as an individual.

  However, you should still look into small business loans as well as personal loans, since they may offer you options worth considering.

• What are the eligibility requirements of a personal loan?

  Qualifications vary by lender, but generally you’ll need to:

  • Be 18 years of age, or the age or majority in your province or territory
  • Show proof of income
  • Be a Canadian citizen or a permanent resident with a valid Canadian address
  • Have an active bank account

• Will I be able to make additional repayments to my personal loan?

  You may be able to make early repayments at no additional cost, depending on the lender. Before you sign a loan contract, inquire with the provider about what their prepayment policy is. If you believe that you’ll be able to make early repayments, opt for a lender that won’t charge you any additional fees.