Should You Get a Personal Loan to Start a Small Business or Startup?

Starting a business is exciting, but funding it can feel overwhelming. You’ve likely heard stories of entrepreneurs maxing out credit cards, borrowing from family, or bootstrapping their way to success.

Personal loans can be another piece of the funding puzzle, primarily because they’re accessible to brand-new entrepreneurs who haven’t built business credit yet. Here’s what you need to know about using a personal loan to start a business and how to compare other options.

Table of Contents

1. Should you use a personal loan for your startup?
   1. When it makes sense
   2. When it doesn’t
2. Personal loan vs. other startup funding
   1. vs. small business loan
   2. vs. business credit card
   3. vs. business line of credit
3. How to apply for a personal loan for business use
4. FAQ

Should you use a personal loan for your startup?

Before diving into loan applications, assess your specific situation. The key is understanding your funding needs and your financial profile. Here are some situations where it can make sense, and when it might be better to consider other financing sources.

When personal loans make sense for startups

Personal loans are best in specific scenarios that align well with many startup situations:

• Limited business credit history: If you’re just starting out, you likely don’t have the business credit score or revenue history that traditional business lenders require. Personal loans sidestep this issue entirely by using your individual credit profile.
• You need less than $100,000: That’s the maximum you can typically borrow using a personal loan, though some lenders have much lower limits. That said, a personal loan should be enough to cover many startup costs, such as equipment, initial inventory, marketing campaigns, or working capital to get through your first few months.
• You have good credit: Personal loans are accessible to borrowers across the credit spectrum, but you’ll have a much easier time securing favorable terms if you have good credit—generally a FICO score of 670 or higher.
• You need funds fast: Many lenders can approve and fund personal loans within 24 to 72 hours. If you need to act fast on a business opportunity or cover unexpected startup costs, this speed advantage is crucial.

When to look elsewhere first

Personal loans aren’t always the best choice for budding entrepreneurs, especially in these situations:

• You need more than $100,000: This puts you outside of most personal loan ranges, so you may have no choice but to use short-term business financing options. These loans can be less stringent about business credit history, but they’re expensive.
• You have established business credit: This opens doors to better options for your business. Take your time to shop around and compare several commercial lending options to find the best fit for you.
• You can wait longer for approval: Some business loans can take weeks to approve, but they may offer lower interest rates and longer repayment terms.
• You want to keep your personal finances separate: Personal loans put your individual credit and assets at risk. If you prefer to maintain clear boundaries, business-specific funding options are better choices.

Personal loan vs. other startup funding

Let’s compare some of the best personal loans against the most common alternatives, with clear winners for different scenarios.

Personal loan vs. small business loan

Small business loans sometimes offer lower interest rates and longer repayment terms, but options for startups can be more expensive, and they come with stricter requirements. Here’s a quick comparison to give you an idea of what you can expect:

Feature	Upgrade Personal Loan	OnDeck Small Business Loan
Interest rate	7.99% – 35.99% APR	56.4% APR average
Loan amount	$1,000 – $50,000	$5,000 – $250,000
Credit score required	580	625
Time to fund	1 day	1 – 3 business days
Revenue requirements	None	$100,000+ annually
Collateral	Unsecured or secured	May require business assets

Winner

Personal loans are usually better for brand-new startups without business credit or that have immediate funding needs.

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Small business loans are typically better for established businesses with revenue and business credit history and those that need access to more capital.

Personal loan vs. business credit card

Business credit cards offer ongoing access to funds, and many also offer rewards on your everyday expenses. However, interest rates are often high, and it’s easy to get caught up in a cycle of high-interest debt.

Meanwhile, personal loans provide a lump sum with fixed payments, giving you less flexibility but more predictability.

Feature	LendingClub Personal Loan	Chase Ink Business Cash® Credit Card
Interest rate	7.04% – 35.99% APR	0% intro APR for 12 months, then 17.49% – 25.49%*
Loan amount/credit limit	$1,000 – $60,000	$500 – $25,000+ (varies)
Access to funds	One-time lump sum	Revolving credit
Rewards and benefits	None	Welcome bonus; 1% – 5% cash back on expenses
Payment structure	Fixed monthly payments	Minimum payment, revolving balance
Personal guarantee	Yes	Yes

Winner

Personal loans are often the most realistic option if you don’t yet have business income. (You could be approved for a business line of credit if you have excellent personal credit, but the limits will likely be low, so the card won’t be a major funding source.)

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Once you’re earning demonstrable business income, business credit cards tend to be better for ongoing working capital needs and rewards, and some offer interest promotions.

Personal loan vs. business line of credit

Similar to a credit card, a business line of credit offers flexibility to draw funds as needed, while personal loans provide predictable fixed payments. Here’s a comparison between two available options:

Feature	Upstart Personal Loan	BlueVine Business Line of Credit
Interest rate	6.70% – 35.99% APR	As low as 7.80%
Loan amount/credit limit	$1,000 – $50,000	Up to $250,000
Access to funds	Lump sum at closing	Draw as needed
Interest charges	Fixed rate on full amount	Variable rate only on amount used
Repayment	Fixed monthly payments	Interest-only or principal and interest
Business requirements	None	12+ months in business, $10,000+ monthly revenue

Winner

Personal loans are the better bet to be approved if you’re just starting your first business. Most business lines of credit require you to be in business for at least six months with consistent revenue. You’ll usually need to provide business bank statements, tax returns, and financials, which most brand-new startups can’t provide yet.

How to apply for a personal loan for business use

Not all personal lenders allow you to use your proceeds for business expenses. Those that do include Upgrade, LendingClub, and Upstart. When you’re ready to move forward with a personal loan, here’s a step-by-step approach to ensure a smooth application process:

1. Get prequalified. Many lenders allow you to prequalify with just a soft credit check. This process can make it easier to compare different offers to find the right one for you.
2. Gather your application requirements. You may need proof of income (tax returns, pay stubs, or bank statements), employment verification, and government-issued identification.
3. Prepare for income verification challenges. If you’re leaving a job to start your business, consider applying while you still have employment income. Be prepared to explain your business plan and projected revenue.
4. Submit your application and review timeline expectations. Most personal loans fund within one week of approval. Online lenders tend to be the fastest, often funding within one to three business days.
5. Review terms carefully before signing. Pay attention to origination fees, prepayment penalties, and interest rate offers. Calculate the total cost of the loan, not just the monthly payment.

Remember that taking a personal loan for business use means you’re personally liable for repayment, regardless of how your business performs. Make sure you have a solid repayment plan that doesn’t rely solely on business success.

FAQ

Will using a personal loan for business hurt my personal credit?

Yes, it can. Personal loans are tied to you as the borrower, not your business. If you make late payments or default, it will appear on your personal credit report and may lower your credit score. On the flip side, making on-time payments can help you build credit.

How much can I typically borrow with a personal loan for my startup?

Loan amounts vary by lender, but many personal loans range from $1,000 to $100,000. If you have strong credit and income, you may qualify for the maximum a lender offers. Keep in mind that you’re personally responsible for repayment, even if your business doesn’t succeed, so only borrow what you can reasonably afford.

Do I need a business plan to get a personal loan?

No. Unlike business loans, personal loans usually don’t require a business plan, financial projections, or tax documents for your startup. Lenders focus on your personal credit, income, and debt-to-income ratio when deciding whether to approve you.