When starting a business, it can feel like there are a million things to do. Most business owners are focused on the product or service they are providing to the world, but there are financial concerns around almost every corner.
One of the most crucial aspects of running a business is having access to affordable financing. In some cases, it may make sense to turn to personal business loans.
Personal business loans are personal loans that can be used towards business expenses. Continue reading to learn more about your options, as well as benefits and downsides to this approach.
On this page:
- How Personal Business Loans Work
- Personal Loans for Business Expenses
- Benefits and Drawbacks of Personal Business Loans
- How to Secure a Personal Loan for Your Business
How Personal Business Loans Work
Personal loans are generally unsecured loans lent to an individual without evaluating the state of the company itself. Instead of asking for a business plan or annual revenue history, the loan application for a personal loan asks for details on the borrower’s personal credit history, income, and assets.
You can use a personal loan for just about any purpose, but you should double-check with your lender of choice to make sure you can use your loan for business funding before filling out an application.
It’s important to understand that if you use a personal loan for business needs, you are responsible for repayment as an individual, not a business. Essentially, it’s your credit — and in some cases, your personal assets — on the hook if the business fails. If you’d rather not risk your own assets, try to find a business loan with no personal guarantee.
Personal Loans for Business Expenses
In addition to banks and credit unions, you can typically find personal business loans through online lenders, which often offer a quick application process, fast funding, and flexible repayment terms.
Below are a few lenders to consider when looking for a personal loan for business. If you want to compare these options side by side, jump to our summary section by clicking here.
LoanMe offers personal loans that can be used for business needs. LoanMe personal loans have higher interest rates and lower maximum loan amounts than its small business loans but can still be a good option if your personal credit qualifies you for a lower rate. Beware of high origination fees that can seriously cut into your loan proceeds.
- APR range: Not provided
- Loan terms: Not provided
- Loan amounts: $2,600 to $100,000
- Check out our full review: LoanMe Personal Loans Review
SoFi is a leading online lender offering personal loans with fixed interest rates to qualified borrowers with strong credit scores. One especially cool feature of a SoFi personal loan is the unemployment protection program, which lets borrowers temporarily halt their monthly payments if they lose their job or income source. In the unfortunate event your business doesn’t work out, this perk could come in handy.
- APR range: 5.99% to 16.24% with autopay
- Loan terms: Two to seven years
- Loan amounts: $5,000 to $100,000
- Check out our full review: SoFi Personal Loans Review
Citizens Bank offers personal loans with no origination or prepayment fees, no collateral, and quick access to funds (usually within two business days). Borrowers can complete an application online or in person at a branch location, and the loans come with fixed interest rates and repayment periods. In order to qualify, applicants should have good credit and income sufficient enough to repay the loan.
- APR range: 6.80% to 20.91% fixed rates
- Loan terms: Three to seven years
- Loan amounts: $5,000 to $50,000
- Check out our full review: Citizens Bank Personal Loans Review
Marcus by Goldman Sachs
Marcus by Goldman Sachs is a newer addition to online lenders offering personal loans for businesses. The lender has an easy-to-use online platform for submitting applications and supporting documents, and there are no origination or application fees. Borrowers with lower credit scores may still be able to qualify, although the interest rate charged will be higher than those with good credit.
- APR range: 5.99% to 28.99%
- Loan terms: Three to six years
- Loan amounts: $3,500 to $40,000
- Check out our full review: Marcus Personal Loans Review
Summary of Personal Business Loans
|LoanMe||Not provided||$2,600 – $100,000|
|SoFi||5.74% – 17.88%||$5,000 – $100,000|
|Citizens Bank||6.79% – 9.06%||$5,000 – $50,000|
|Marcus||6.99% – 28.99%||$3,500 – $40,000|
Benefits and Drawbacks of Personal Business Loans
Benefits of Personal Loans for Business
- Easier to qualify: Most traditional business loan lenders want to see a history of steady revenue cash flow when evaluating your application, so if your business is brand-new and not yet profitable, you might not be able to qualify.
- You may get a better rate: Personal loans may be more affordable than other financing options because interest rates are usually much lower.
- Use the money how you want: Because a personal loan is in your name as the borrower, you are not restricted in how the funds can be used, so long as your lender doesn’t explicitly prevent you from using the loan for business purposes.
Drawbacks of Personal Loans for Business
- Your credit and personal finances are on the line: Should the business fail and you become unable to repay the loan, your credit and personal finances may suffer.
- The loans aren’t as big: Loan limits for personal loans are generally much lower than conventional business loans.
- Not great for short-term financing: Personal loans for business are not often a great solution for short-term financing needs.
- It doesn’t help your business credit score: All businesses have credit scores, just like individual consumers do. Getting a personal loan under your name may help increase your personal credit score over time, but a traditional business loan helps your business credit score.
- You lose out on tax benefits: Although proceeds from a personal loan are not taxable on either the personal or business side, using a personal loan for business finances means you miss the opportunity to qualify for tax breaks by writing off the interest as a business expense. Provided the business and loan meet certain IRS qualifications.
How to Secure a Personal Loan for Your Business
If you’re considering a personal loan for your new business, the good news is the process is relatively simple. Compare the best personal loans on the market, and check that companies that seem like a good match allow funds to be used towards business expenses.
Applications can often be completed online, and you’ll need to provide information regarding your income, residency, Social Security number, and date of birth.
Some lenders may require you to provide additional documentation, such as paystubs, tax returns for income verification, and bank and investment account statements.
In many cases, your application can be approved in as little as one business day, with funding taking place quickly after that. Once your business loan is in place, be sure to have a plan for repayment so you don’t put your personal assets on the line.
Author: Melissa Horton
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