Compare personal loans for startups and established companies
What small business owners need to know before they borrow.
If you’re starting a new business, don’t want to put up collateral or only need a small loan, a personal loan may be a simple way to get funding. This is because lenders rely on personal credit scores, not revenue or time in business, to make approval decisions.
But it’s not always the best idea. If you have an established business with a specific purpose in mind, a business loan may be the better choice. Since personal loans have lower loan amounts, it also may not be the right choice for big business expenses.
Overall, your financing options depend on you — not your business — when you apply for a personal loan. The loan process is simpler, and if you can make do with smaller loans, it may be a good way to avoid putting your business on the line when you need funding.
How personal business loans work
Personal loans rely on the credit score and personal finances of the business owner — not on time in business and revenue. This makes it easier for a new business, startup or someone with bad credit to get the funding they need.
Since most personal loans are unsecured, you won’t risk any personal or business assets. And when you use a personal loan for your business, you can cover a variety of expenses, including working capital and equipment.
The application process for a personal loan is quick. You’ll likely be able to complete it within a few minutes, and some online lenders offer funding on the same day you apply. If you choose to borrow from a bank or credit union, it may take longer for your application to be processed.
Quick facts: Personal loans for business
Loan amount: Up to $100,000
Loan term: 2 to 7 years
Interest rates: 4% to 36%
Turnaround: As soon as one business day
How to qualify
To qualify for a personal loan, you will need to meet some standard criteria. The exact requirements vary by lender, but generally you will need to have good to excellent credit — a score of 670 or higher. Your lender will also need all borrowers to be at least 18 years old, and most will only consider applications from US citizens or permanent residents.
While you won’t necessarily need a business plan, having one could help improve your odds of funding. Because some lenders are wary of loaning to new businesses, especially ones that haven’t opened their doors, providing a business plan can help ensure you know how your business will use a personal loan.
Bad credit personal loans for business
There are personal loans for bad credit available, but they may not be the right choice for most business owners. That’s because you may face an annual percentage rate (APR) of up to 36%, which means you’ll pay back $36 in interest and fees for every $100 you borrow.
The higher cost can make it much more difficult to repay your loan. If your business idea can wait, focus on improving your credit score before opening your small business.
5 best personal loans for small businesses
Here are some of the top providers if you’ve decided on a personal loan to fund your new venture:
Discover is a top lender, but it's not necessarily the best for business expenses. You'll need to spend at least 70% of your loan on debt consolidation. And since loans are capped at a low $35,000, this limits the amount you can spend on your business. But if you need to use your loan for multiple expenses, Discover has competitive rates and a unique 30-day money back guarantee.
Available in all states
Pros
Money-back guarantee
Low starting APR of 6.99%
Wide variety of loan terms available
Cons
Majority of loan must be spend on debt consolidation
Upgrade is one of the most flexible options for business owners with fair credit. It allows you to borrow anywhere from $1,000 to $50,000 — and interest rates start at a low 8.49%. Unlike many lenders, Upgrade allows you to borrow with a coapplicant, which makes it a great choice if you have a partner or someone willing to help you secure funding. But it can still be expensive with an origination fee up to and an APR that could reach 35.99%.
Not available in: Colorado, Iowa, Maryland, Vermont, West Virginia
Personal loans made through Upgrade feature APRs of 5.94%-35.97%. All personal loans have a 2.9% to 9.99% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade's lending partners. Information on Upgrade's lending partners can be found at https://www.upgrade.com/lending-partners/.
Rocket Loans offers same-day funding on loans under $25,000. This sets it apart from most lenders — the usual turnaround time is between two to five business days. And while you will face an origination fee, it's on the lower end of the spectrum and could potentially be as low as 1%. Plus Rocket Loans receives great customer reviews about its product and how it treats borrowers, so it's a good choice if you want a lender you can rely on when starting your business.
Not available in: Iowa, Nevada
Pros
Offers same-day funding available
Upfront about fees and costs
Great customer reviews
Cons
Origination fee up to 6%
Must meet semi-strict credit and income requirements
Prosper is upfront about what requirements you'll need to meet to get funded. This makes it a good choice for business owners with fair credit who don't want the hassle of making sure they qualify. It's also one of the few lenders that accepts coapplicants. But Prosper has one of the higher starting interest rates out there. Since you'll need a credit score of 640 to qualify, there may be better deals out there.
Not available in: Iowa, North Dakota, West Virginia
Avant's biggest benefit is that it works with self-employed borrowers — a rare trait. This means that business owners who are already working for themselves will be able to qualify. However, you will still need to provide proof of steady income. And on top of that, Avant can be pricey for borrowers with good credit — plus it settled a lawsuit with the Federal Trade Commission (FTC) in 2019 for mishandling payments.
Not available in: Colorado, Hawaii, Iowa, Nevada, New York, Vermont, West Virginia
Personal loans from $2,000–$35,000. If approved, the actual loan amount, term, and APR that a customer qualifies for may vary based on credit determination and other factors. Avant branded credit products are issued by WebBank, member FDIC.
Easy qualification. A personal loan relies on your credit score, income and current debts — not on your business. Online lenders are especially willing to consider small business owners who don’t meet the strict requirements set by more traditional lenders.
Less paperwork. Unlike business loans, you don’t have to submit much information to the lender when you apply. Your lender will run a credit check, generally after preapproval, and may only require you to send copies of your pay stubs, bank statements or tax returns. Compared to a business loan, which requires a variety of documents, it’s a much simpler process.
Lower interest rates. If you have good to excellent credit, you may be able to score a competitive APR on a personal loan that beats the rates on all but the largest business loans. This helps you save money, which can be useful if you only need to borrow a small amount.
Same-day decisions. Most lenders will be able to review your application and come to an approval decision on the same day you apply. With a business loan, you’d likely need to wait a week or more before learning if your business qualifies.
No collateral required. When you opt for an unsecured loan, the most common personal loan option, you won’t need to provide any collateral or a down payment. This protects your personal and business assets.
Flexible payments. Personal loans offer business owners a variety of ways to make monthly payments. In addition, you rarely need to make daily or weekly payments — something that short-term business loans require. Most lenders also don’t charge a prepayment penalty, so you’re free to pay back your loan when it suits your business without fees.
Drawbacks of a personal loan
Risks personal assets. If you opt for a secured loan, you risk your personal assets for a business that may or may not pan out. It may mean lower rates, but think carefully before putting savings accounts or your home on the line for a small business.
Smaller loans. Only a few lenders offer loans larger than $50,000 — and these are very difficult to qualify for. Your credit score will need to be nearly perfect and supported by a large income. On the other hand, a business loan may give you the opportunity to borrow in the hundreds of thousands.
Relies on personal credit history. No matter which financial institution you work with, you’ll need to meet its credit score requirements. Your credit history will also be an important factor that determines how much money you’ll be able to borrow.
Mixes finances. Using a personal loan as a small business owner means mixing your personal and business accounts together. For startups, this may not be a big deal — since you lack an established credit history. But for a small business that already has its own credit score, or multiple business owners, a personal loan may put too much of your personal finances at stake.
Are personal loans for business tax-deductible?
With sufficient documentation, you can potentially deduct interest payments on a business loan from your taxes. Getting this deduction requires keeping records of how your money was spent and how it related to your small business. Only funds used for business can be deducted from your taxes.
One way to keep track of how much you spent on business is to put the funds you intend to use for these purchases into your business account. Separating your business funds from your personal accounts makes it easy to determine what percentage of the interest you pay goes toward business expenditures.
For a brand-new startup — especially one that hasn’t opened its doors yet — small business loans may be out of reach. This is because business loans are typically limited to companies that have been in business for at least six months and make at least $100,000 in annual revenue. Combined with the time it takes to complete a loan application, a business loan may not be the right option for a new small business owner.
The process of getting a personal loan is much less strenuous. Provided you meet a lender’s credit score and income requirements, and don’t have a large amount of existing debt, you likely qualify. Banks, credit unions and online lenders all offer personal loans, so you have a variety of options available.
Be upfront with your plans for the loan. Some lenders may not allow its personal loans to be used for new businesses, especially one in a risky industry. But in general, you should be able to use a personal loan to cover working capital, marketing and other startup expenses.
8 alternatives to personal loans
A personal loan isn’t necessarily the right choice, although it may be the best option for many small business owners. Here are some additional ways to get financing as a new business. Just keep in mind that a small business loan may have strict credit score and a long application process.
SBA loans. The Small Business Administration (SBA) generally only offers loans to established small businesses. However, the microloan program offers business loans up to $50,000 — although the SBA states that its average loan is about $13,000. As long as you have equity invested in your business and are a registered for-profit, you could qualify.
Microloans. Beyond the SBA, there are other microloan programs that business owners can qualify for. Kiva is one of the most well-known options. It offers small, low-interest financing to small businesses, including startups. There are other programs as well, but many are local — so reach out to your community to find a microlender in your area.
Credit cards. If your small business expenses will fit on a credit card, then it may make sense to use it. Not only can you earn cash back and travel rewards, you may qualify for a 0% APR introductory period when you open a new credit card.
Business credit cards. Likewise, you may want to consider a business credit card. Unlike a business loan, a business credit card allows you to make minimum monthly payments to keep your costs down — as long as you’re willing to pay interest on the carried balance. This is a good way to build your business credit history while covering small to midsize expenses.
Business lines of credit. Similar to a business loan, a business line of credit may be out of reach to new businesses that don’t meet set revenue requirements. They offer more flexibility than a personal loan, but have variable monthly payments.
Friends and family. If your friends and family have the ability, they can be a good source of financing when your credit score is low or you don’t have access to another personal or business loan option. Small business owners should still commit to regular repayment — and it could be worth hammering out an official loan agreement to keep both parties happy.
Crowdfunding. A small business that offers a unique service or product could look into a crowdfunding website to get initial funding. However, you’ll need to be committed to marketing on multiple platforms to gain enough traction, especially if this is your primary source of business financing.
Grants. Grants don’t require you to pay back any funding. This makes them one of the most sought-after options for businesses — and the most difficult to qualify for. Only certain types of businesses will be eligible. And even if you qualify, be prepared for to spend weeks or even months preparing an application and waiting for a response.
Recap: Personal loans for small businesses
If you’re looking to start a business or don’t yet meet the requirements set for small business loans, you may still be able to use a personal loan. And while there are some alternatives, a personal loan may be your best bet if you aren’t able to borrow a business loan.
Kellye Guinan is a freelance editor and writer, specializing in consumer lending. Her writing and analysis has been featured on Bankrate, MSN and MediaFeed. She holds degrees in anthropology and German language and literature from Middle Tennessee State University.
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