Can you use a personal loan for your small business?

Find out if a personal loan is an option for getting your business off the ground or expanding it.

Avatar

By

Chris Lilly

Updated

Fact checked
Compare a range of business loans Compare

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 funding. However, there are loans that are specifically for startup funding, so if you’re starting out, it’s worth comparing providers and checking eligibility.

You might have been considering taking out a personal loan. Because personal loans are made to you as an individual, the state of your business isn’t considered. However, many lenders state categorically that you can’t use their personal loans to fund a business.

Can I actually use a personal loan for business?

Generally, no. There are a few lenders who will allow a personal loan to be used for funding a business, but many don’t allow it. Major banks which offer both personal and business loans, for example, will prefer you to use personal loans for personal use, and vice versa.

In addition, if you find a personal loan that can be used for business purposes, consider the conditions the loan 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.

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.

Compare business loans

Table: sorted by loan terms, promoted deals first

Name Product Finder Score Loan type Credit limits Loan terms Turnover/trading criteria Key benefit
Funding Options Unsecured Loan
Funding Options Unsecured Loan
Finder score
★★★★★
Unsecured loan
£1,000 to £15,000,000
6 to 360 months
£100,000 per annum minimum turnover,
minimum 12 months trading
Representative example: Borrow £50,000 over 24 months at a rate of 7.63% APR. Monthly repayment of £2,252.94 and the total amount payable is £54,070.56.
Go to site
View details
Nest Unsecured Business Loan
Nest Unsecured Business Loan
Finder score
★★★★★
Fixed rate Unsecured loan
£10,000 to £5,000,000
6 to 120 months
£200,000 minimum turnover,
minimum 12 months trading
Go to site
View details
Barclays Secured and Unsecured Business Loans
Barclays Secured and Unsecured Business Loans
Finder score
★★★★★
Fixed or variable rate loans
£1,000 to £5,000,000
1 to 240 months
No specified minimum turnover or time trading
Subject to application, financial circumstances and borrowing history. Other terms may be available.
View details
iwoca Flexi-Loan
iwoca Flexi-Loan
Finder score
★★★★★
Variable rate Unsecured loan
£1,000 to £500,000
1 to 24 months
£25,000 per annum minimum turnover,
minimum 6 months trading
Representative example: Borrow £10,000 over 12 months at a rate of 40% p.a. (variable). Representative APR 49% and total payable £12,294.
View details
loading

What do I need to qualify?

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.

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 reducing your debts and keeping up with your payments.

But not everyone has time to raise their credit score. You could also apply for a bad credit personal loan. Bad credit personal loans should be weighed carefully, as they tend to carry higher interest rates and costs. They also may not be approved for business purposes.

Are personal loans for business tax-deductible?

With enough documentation, you can treat interest payments on your loan as deductible business expenses when it comes to tax on your profits. Getting this deduction requires keeping records of what you spent the money on and how these payments relate to your business.

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

Pros

  • Quick process. It can take weeks to complete the process for a business loan, whereas some personal loans are funded within a business day.
  • 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.

Cons

  • Lower limits. Business loans can have a maximum of millions of pounds. The personal loan maximum is generally around £30,000 or less.
  • 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.

Other alternatives to business loans

  • 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.
  • 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.
  • Grants. Government grants are available for many types of businesses and business owners.
  • Crowdfunding. The practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.
  • 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.
Capital on Tap Business Credit Card (+optional Business Rewards)

Business funding for the real world

  • Up to 1% cashback or 1 Avios per pound spent
  • Up to 10,000 bonus points when you spend £5,000 in 3 months
  • Unlimited free company cards for employees and partners
  • Up to 56 interest-free days on purchases each billing cycle

Representative example: When you spend £1,200 at a purchase rate of 35.15% (variable) p.a., your representative rate is 35.15% APR (variable). Optional upgrade to Business Rewards (£99 per year).

Go to site

Bottom line

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. Most personal loans can’t be used for a business, but there’s a wide range of options within business loans to help you, whether you’re a startup or more established. Whatever you opt for, comparing loans is critical, and always check you’re eligible before you apply.

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

Go to site