Find out if a personal loan is an option to grow, expand or get your business off the ground.
Starting a business is no small feat. You’ve probably already done the planning and the paperwork. But how do you go about actually getting your products or services in front of the masses?
To be eligible for a business loan, you’re typically required to be in business for a minimum of a year, sometimes two years. Between this requirement and minimum annual revenue eligibility, it can feel impossible to get startup funding.
Because personal loans are made to you as an individual, the state of your business is not a concern. Instead, your ability to repay and your creditworthiness are what lenders consider.
Can I actually use a personal loan for business?
The short answer is yes, you can use a personal loan for business needs.
While personal loans can generally be used for any legitimate reason, including financing a business, you should consider the conditions they could come with. The biggest one is that your name — not your business name — is attached to the loan. Any missteps could become personal liabilities.
Personal loans also rely on your credit as an individual and play by rules that slightly differ from business requirements. You may have the option of a secured personal loan, but it’s less likely that you’ll need to provide collateral with a personal loan than with a business loan.
Personal loans for business in a nutshell
- How much can I borrow? Up to $50,000
- How long is a typical loan term? 1 to 5 years
- What rates can I expect? 4% to 36%, depending on your personal credit.
- How fast can I get my money? As quickly as one day.
What do I need to qualify?
To get the best personal loan, you’ll generally need to have a good credit score of 680 or higher. Applying is fairly easy through the provider’s website or by clicking “Go to Site” in our comparison table.
When applying for a personal loan, have handy your personal information and financial details. Depending on the lender, your application could take as little as five minutes to complete. You can improve your credit by doing things like paying down your open balances and keeping up on payments. But not everyone has time to raise their credit score. You could also apply for bad credit personal loans. Bad credit personal loans should be weighed carefully, as they tend to carry higher interest rates and costs.
What if I have bad credit?Life happens, and sometimes it leads to less-than-perfect credit. Luckily, you have ways to improve your credit over time.
You can improve your credit by doing things like paying down your open balances and keeping up on payments.
But not everyone has time to raise their credit score. You could also apply for bad credit personal loans. Bad credit personal loans should be weighed carefully, as they tend to carry higher interest rates and costs.
Compare personal loans you can use for business
A woman from Utah uses a personal loan through Prosper to take her small business to the next level:
Are personal loans for business tax-deductible?
With sufficient documentation, you can potentially deduct interest payments on your loan from your taxes. Getting this deduction requires keeping records of what you spent the money on and how these payments relate to your business.
A personal loan you get for your small business may be used for more than just business though. To ensure that interest payments are deductible, you may need to do a little more work — only funds used for business expenses 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.
Pros and cons of using a personal loan for a small business
- Quick process. It can take weeks to complete the process for a business loan, whereas some personal loans are funded within a business day.
- Startup friendly. Because you’re personally taking responsibility for the loan, your business does not need to meet any requirements.
- Low interest rates. Good or excellent credit can typically get you lower interest rates for personal loans. A business loan could be more costly if your business credit isn’t as robust.
- Reasonable repayment terms. Some business financing require weekly or even daily repayments. With a personal loan, repayments are more likely to be monthly.
- Lower limits. Business loans can have maximums of millions of dollars. Personal loan maximums are generally limited to around $50,000.
- Personal liability. You are personally stuck with the consequences of repayment issues. If your business doesn’t become profitable or you decide to close the business, you still have to pay back all of the loan.
- Less support. With many lenders, getting a business loan also means gaining access to tools and experts to help you grow your business. You usually won’t get this same business support with a personal loan lender.
4 tips to get the most out of a personal loan
- Consider efficiency. Think about how much time and money each purchase might help you save when considering .
- Go secondhand when you can. Some machines are built to last and don’t need more than a few repairs to keep on running for decades. Some might even last longer than newer versions — a lot of new equipment is designed to become obsolete in a few years.
- Stock up with wholesalers. More inventory means more potential sales. Use your personal loan to take advantage of wholesaler deals to save on costs.
- Make an investment in marketing. Now that you have the goods, you need the customers. Investing in a marketing plan by hiring a consultant — or even doing it yourself — can more than pay for itself.
Other alternatives to business loans
- Investors. Angel investors and venture capital investors can provide financing in exchange for a portion of your business. This type of funding carries its own risks and rewards, which you can read about in our guide.
- 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.
- Grants. Federal and private grants are available for many types of businesses and business owners, especially women, minorities and veterans.
- Competitions. Schools, businesses and local organizations are just a few sources of small business competitions that feature different industries and niches.
- 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.
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 may have better luck qualifying for a personal loan. Comparing your loan options is an important step.