Editor's choice: Upgrade personal loans
- Flexible loan options
- No prepayment penalty
- Quick turnaround
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It can feel next to impossible to get startup funding, especially when your business hasn’t opened its doors. But because personal loans are lent to individuals, the state of your business won’t be a concern. Instead, your ability to repay and your creditworthiness are what lenders consider. You’ll still need to meet certain eligibility criteria, but you won’t have to provide a business plan or jump through the hoops associated with borrowing a business loan.
The short answer is yes, you can use a personal loan for business needs.
Personal loans 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.
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.
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 Check my rate in our comparison table.
When applying for a personal loan, have your personal information and financial details handy. Depending on the lender, your application could take as little as five minutes to complete.
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.
A woman from Utah uses a personal loan through Prosper to take her small business to the next level:
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.
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. When combined with other types of business financing, a personal loan could be an excellent asset to expand your business.
Before you start, take a look at your options by reading our guide to personal loans.
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