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 seem impossible to get funding. But don’t give up – there are still options to explore.
Taking out a personal loan to fund your business might have crossed your mind, for instance. Because personal loan funds are transferred to you as an individual, the state of your business isn’t considered. Instead, providers will look at your personal credit score and financial circumstances. The downside is not all lenders will allow you to use a personal loan for business purposes.
Yes you can – but you’ll need to do your research as many lenders will reject your application if you’re planning to use your personal loan to start a business. Major banks which offer both personal and business loans, for example, will prefer you to use personal loans for personal use, and business loans for business use.
One of the main personal loans you can use for business purposes is the government-backed Start Up Loan. This is designed to help those looking to start a business or grow an existing one, but it’s a personal loan. You can borrow between £500 and £25,000 over 1 to 5 years.
Before you use a personal loan for business purposes, there are some things you need to consider.
For a start, consider the conditions the loan could come with. The biggest one is that your name — not your business name — is attached to the loan. This means you will be personally liable for repaying the loan – not your business. If you fail to repay it, you could damage your personal credit score.
You should also be honest and upfront with your lender about the purpose of the loan. Some lenders may order you to pay back the loan immediately if they discover you misled them.
Using a personal loan for business reasons can make it more confusing when it comes to filing your tax return as there’s less of a distinction between your personal funds and your business money.”
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To get the cheapest personal loans, you’ll generally need to have a good credit score. Applying is fairly easy through the lender’s website.
When applying for a personal loan, have your personal information and financial details to hand. 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, there are ways to improve your credit over time. These include reducing your debts and keeping up with your payments.
You could also consider applying for a bad credit personal loan. However, be aware that they tend to have higher interest rates and costs, so they should be considered carefully. They also may not be approved for business purposes.
With enough documentation, interest payments on your loan can be treated as deductible business expenses when it comes to tax on your profits. If you want to do this, make sure you keep accurate records of what you spent the money on and how these payments relate to your business.
Representative example: When you spend £1,200 at a purchase rate of 35.15% (variable) p.a., your representative rate is 35.2% APR (variable). Optional upgrade to Business Rewards (£99 per year).
When borrowing money, you need to be honest about what you’re using it for, or your lender could demand you repay it all immediately. Many personal loans can’t be used for business purposes, but if you do your research, you might be lucky enough to find a lender that will let you use a personal loan to get your business up and running. Just make sure you check the eligibility criteria carefully and remember that you, not your business, will be responsible for repaying the loan.
Our survey showed that customer satisfaction levels are generally higher among business loan customers than personal loan customers.
| Response | Personal loan users (%) | Business loan users (%) |
|---|---|---|
| Very satisfied | 37.22% | 53.25% |
| Reasonably satisfied | 45.53% | 37.50% |
| Neither satisfied nor dissatisfied | 12.90% | 7.50% |
| Moderately dissatisfied | 2.61% | 1.25% |
| Highly dissatisfied | 1.74% | 0.50% |
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