Can I Use a Personal Loan for My Small Business?

·7 min read

Content provided by Credible. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

If you’ve recently started a business, securing a business loan might prove to be difficult. With stricter underwriting rules and conditions, business loans are often reserved for established businesses.

Taking out a personal loan for your small business can provide the funds you need to help your business grow. Since personal business loans don’t require collateral, they won’t put your business at risk if you get one — but it could affect your personal credit score, especially if you have trouble making your monthly loan payments.

Not all lenders allow you to use personal loan funds for business purposes. But if a lender doesn’t have any restrictions on using loan funds for your business, you can use the money for any business need, like equipment purchases, office essentials, marketing, and more.

If you meet lending requirements, you can score low rates and favorable terms on a personal business loan.

Credible lets you compare personal loan rates from multiple lenders in minutes.

9 personal business loans to consider

If you’re looking for a personal business loan to fund your new venture, consider these nine Credible partner lenders.

Best Egg: Good for fast funding

Best Egg is a great option if you need to borrow money quickly for business expenses.

Minimum credit score: 600

Loan terms: Two to five years

Loan amount: $2,000 to $50,000

Funding time: As soon as one to three business days

Discover: Good for longer loan terms

If you need more time to pay off your loan, Discover offers longer repayment terms than many lenders.

Minimum credit score: 660

Loan terms: Three to seven years

Loan amount: $2,500 to $35,000

Funding time: As soon as the next business day

FreedomPlus: Good for excellent credit

FreedomPlus offers some of the lowest rates around if you have stellar credit.

Minimum credit score: Does not disclose

Loan terms: Two to five years

Loan amount: $7,500 to $50,000

Funding time: As soon as two business days

LendingClub: Good for credit card debt consolidation

This online lender allows you to consolidate all your credit card debt into a new loan with a single monthly payment.

Minimum credit score: 600

Loan terms: Three or five years

Loan amount: $1,000 to $40,000

Funding time: As soon as three business days

LendingPoint: Good for fair credit

Small-business owners with fair credit may still qualify for a personal loan through LendingPoint.

Minimum credit score: 580

Loan terms: Two to five years

Loan amount: $2,000 to $36,500

Funding time: As soon as the next business day

LightStream: Good for large loan amounts

LightStream is one of the few lenders that offers personal loans of up to $100,000.

Minimum credit score: 660

Loan terms: Two to seven years

Loan amount: $5,000 to $100,000

Funding time: As soon as the same business day

Prosper: Good for peer-to-peer lending

With its peer-to-peer business structure, Prosper is a unique lending option.

Minimum credit score: 640

Loan terms: Three or five years

Loan amount: $2,000 to $40,000

Funding time: As soon as one business day

Upgrade: Good for quick loan decisions

Upgrade allows you to check your potential rate for free, with no effect on your credit.

Minimum credit score: 580

Loan terms: Three or five years

Loan amount: $1,000 to $50,000 ($3,005 minimum in Georgia; $6,005 minimum in Massachusetts)

Funding time: As soon as one business day

Upstart: Good for bad credit

Depending on where you live, you may qualify for an Upstart personal loan even if you have bad credit.

Minimum credit score: 580 (in most states)

Loan terms: Three to five years

Loan amount: $1,000 to $50,000

Funding time: As soon as one to three business days

See personal loan rates from these and other lenders using Credible.

Using personal loans to fund your small business

While small-business loans exist, sometimes it might make more sense to fund your business through a personal loan. If you’re just starting, your company history may not be lengthy enough to qualify for a loan through some lenders.

These lenders may require you to be in business for several years before you meet their eligibility requirements for a small-business loan. People who launched new businesses or side hustles during the COVID-19 pandemic might not be eligible for most business loans, but they might be able to qualify for a personal loan.

Business loans are often given out for specific business expenses. Business loan types include …

  • Equipment financing

  • Commercial real estate loans

  • Medical practice loans

  • Business lines of credit

  • Small-business loans

Personal loans are good funding options because they offer more flexibility in how you can use the funds. Many business owners use personal loans to purchase office supplies or large equipment, for example. You may need the money to stretch your company’s marketing and advertising budget. Maybe you’re ready to expand your business or need some working capital for day-to-day operating expenses. Whatever the reason, most lenders allow you to use your personal loan funds as you please.

Also, consider your needs as a small business. Personal loans are often a better option than a business loan if you’re looking for a smaller loan amount. The average new personal loan amount in May 2021 was $7,710, according to recent data from TransUnion. Compare that with the average small-business loan amount of $71,072 in 2020, according to data from AdvisorSmith. A personal loan may be more appropriate if you don’t need a large amount of money to reach your business goals.

If you’re looking for a personal loan to fund your business, Credible makes it easy to compare personal loan rates.

Pros and cons of personal business loans

Like any financial product, personal business loans come with advantages and disadvantages that you’ll want to consider.

Pros of personal business loans

  • Simpler loan application process — Most business startups likely won’t meet revenue and operation history requirements to be eligible for a business loan. Lenders typically base approval for personal loans on your credit health and income. You can use other income sources, like a full-time job, to qualify for a personal loan.

  • Less documentation required — Many lenders require you to submit extra documentation, like a business plan, when applying for a small-business loan. Personal loans require much less paperwork.

  • Quick loan decisions — Many lenders offer instant or same-day approval for personal loans depending on eligibility. You may even receive a payout the same day or next, though it can take up to a full business week to receive funds. The approval and funding process for some small-business loans can take months.

  • Low rates — Personal loans typically come with lower interest rates than other financial products, like business loans and credit cards.

  • No collateral required — Most personal loans for business are unsecured, meaning they don’t require you to put up collateral. Some business loans require you to provide collateral or sign a personal guarantee.

Cons of personal business loans

  • Loan limits — The ceiling on personal loan limits is typically lower than with business loans. If the financial needs for your business exceed $100,000, your only option may be taking out a small-business loan.

  • Personal liability — You’re personally on the hook when you take out a personal loan for business expenses. If you have trouble repaying your loan, you could damage your personal credit.

  • Interest deductions — Small-business loans offer some tax advantages, like tax deductions for interest paid. Those tax benefits don’t apply to personal loans.

  • Shorter terms — Personal loan terms typically range from three to five years. Ten-year terms are common for small-business loans, with some terms extending up to 25 years in some cases.

  • Other financing — Taking out a personal loan will raise your debt-to-income ratio, a determining factor in most financing scenarios. If you plan to purchase a home or car soon, a personal loan that increases your DTI could hurt your chances of getting approved.

About the author: Kevin Payne is a finance and family travel expert. He writes about credit cards, travel, student loans, saving money, homeownership, careers, and entrepreneurship. His work has appeared in Forbes Advisor, The Ascent, FinanceBuzz, Slickdeals, Student Loan Planner, and more. He is working toward accreditation as an Accredited Financial Counselor (AFC).

The post Can I Use a Personal Loan for My Small Business? appeared first on Credible.