If you start a business, you will most likely need to attain some form of finance to try and start your company. It can be difficult to get the money you need, especially if you don’t have a history as a business owner. Lenders want the assurance that you know how to effectively run a business – lending to business owners with a lack of business experience is a risky endeavor that many lenders don’t want to undertake. Modern developments in finance have made it easier to get loans for your business, but this doesn’t mean you will find it easy – in fact, it may be next to impossible to get a business loan if you don’t have the right credentials.
But, have you ever needed extra cash for any purpose at all—for your wedding, an unexpected hospitalization or even for a brand-new laptop that you simply don’t have the cash for? If you don’t have enough savings yet and your credit card is not allowing you to go beyond your limit, you can go to the bank and apply for a personal loan. Personal loans can be used to start businesses in the same way that business loans can.
We believe the above introduction about personal loans for business is very easy to understand and you probably have an idea by now how it works. It is basic, really. You have a personal loan but you will be using the funds for your business. This means that you can do this whether you’re establishing a startup company, you simply want to earn on the side from a business while you’re still working on your day job or you already have an existing business but you prefer loaning funds in your name.
You don’t have to present any of your business documents and in some cases, you don’t even have to give any information about your business. This type of loan, as its name suggests, is purely personal. Just get ready with a strong credit score, ideally over 580. You can get funding for your loan in as quick as 24 hours. You can apply for a loan for as much as $35,000. That amount may not seem like much, but you have to remember—this is a personal loan you’re getting and you’re simply using your personal records rather than that of your business.
A personal loan for business can be paid over three to five years. For such a small amount spread over that time, you won’t have to make big payments every time. Even better, you don’t have to make weekly or daily payments, as this type of loan usually requires monthly payments.
While this goes towards your personal credit history, it can be a lot more affordable compared to an actual business loan.
Because the loan is personal, one thing that you don’t want to do is get the loan by yourself if you have a business partner. Getting a personal loan for business should only be an option if you own the business outright, or if your business partners are putting in an equal share of capital. Don’t take out a personal loan for business if this is not the case as it will mean that you are shouldering the risk by yourself entirely. It can also complicate funding in terms of ownership, and leaves you exposed to your partner not pulling his own weight.
Are You Qualified to Get a Personal Loan for Business?
There aren’t many requirements and such high criteria to get approved for a personal loan for business. Of course, your credit score must be very good. In fact, many of our clients who got personal loans for their business have an average credit score of 680. If you have a credit score lower than that, you can still try as the usual qualification only asks for 580+.
Aside from you credit score, you need to present several other personal documents. Your driver’s license, a bank account, pay slips or W-2s and your personal tax returns may also be required.
Once again, we’d like to mention that your business does not affect your loan application at all. It is your own personal record and your own personal credit score that will dictate whether you will be qualified or not.
Most often, new business owners without a business history are the ones who are getting this type of loan. Don’t worry about a business plan or other forms of documentation regarding your company – that’s what you would need if you were applying for a traditional business loan. With personal loans the lender is only assessing your personal ability to pay back the loan. Further discussion on how you can prepare yourself and your financial standing for applying for a loan is provided below.
Personal Loan vs. Business Loan
You might be wondering now, if you will be getting a loan for your business, why use your personal account if you can simply apply for a business loan?
The explanation is very simple—a personal loan is way less complicated compared to a business loan. There’s less paperwork involved and you can get funds quite quickly. In addition, they’re much easier to get if you don’t have a history as a business owner. Lenders want to know that you have been successful in running a business, and they’re not likely to lend to you unless you can prove that. You can loan hundreds and thousands of dollars, sometimes even over a million dollars if you will get a business loan. For personal loans, you can only get as much as $35,000; sometimes up to $40,000, but that’s it.
If you don’t like paperwork, if you can’t wait longer than a few days and if you don’t need too much cash in the first place, then a personal loan for business is perfect for you.
Another point to remember is that a personal loan can cost way less than a business loan and the payment structure is very simple. These aren’t exactly made for businesspeople, so financial institutions see to it that even ordinary individuals who are not that knowledgeable about finances can still understand it. It’s as simple as this—you will apply for a loan, you will be given cash, you will be asked to prepare fixed monthly payments.
The best part about a personal loan for business is that you can use the money any way you want. For business loans, you will often be asked what the purpose for the loan is. It can be to purchase equipment, pay off debts or to catch up on bills. For personal loans for business, you can use the money any way you want.
For example, you borrowed $10,000. You can use the $5,000 for your business venture and the remaining $5,000 for a weekend vacation. It doesn’t matter at all. It is your personal loan so you are making the decision.
The Only Other Fee You Should Know About
You know by now that a personal loan for business is as straightforward as it can be. Fees tend to vary by lender, but there is always one fee that you should be aware of. Aside from the amount you will be getting and the interest rate on top of that, there is almost always a closing fee.
The closing fee is a minimal amount charged to you by the bank or the lender to take out that loan. Most often, the closing fee is deducted from the funds that will be deposited to your account upfront.
For example, you loaned for $10,000. The closing fee attached is $500. Only $9,500 will be deposited to your account. However, the full $10,000 still has to be paid.
$500 might seem like a very small amount but for others who already have specific purposes for the cash they’re loaning, this can be significant. In that case, find out how much the closing fee is so you can add that to the amount you’re asking for so you still get the full amount you need. What you can do is you can borrow $10,500 or even $10,600 just to be sure that you will get at least $10,000 in your bank account once the loan has been funded.
Personal Loans for Business: Where to Get Them
If you feel that a personal loan is something that you may be interested in, you may be wondering where the best place to get one is. You can get personal loans from any lender that issues consumer loans. Traditionally, many people head to a traditional bank to get a personal loan. Large consumer banks are experts at getting you finance for a relatively low cost. The only downside is that these banks are extremely risk averse and make sure to take time to process your application and understand if you’re eligible. While this is a good thing, it can be a really pain if you’re trying to get the capital you need to start your business.
In recent years, online lenders have emerged as one of the new places that people attain personal loans. As technology grows more advanced, it has become much easier to get finance online. Many online lenders have portals in which you can get quotes and upload documents. They also happen to be able to get people funding much more quickly. Interest rates can be slightly higher, but the entire process is much more pain-free. If you’re looking to get the money you need quickly, and you don’t want to have to meet a banker, you might find it easier to head online and apply through one of the major online lenders. You can often compare and contrast rates directly online.
Credit Score: The Importance
When you are getting a personal loan for your business the most important aspect of your loan application will be your personal credit score. Lenders will be loaning against your name and will want to know that you a viable borrower to be giving money to. The better you credit score, the more likely it will be that you will be able to get a personal loan for your business. If you are thinking of starting a business soon and you plan on using a personal loan to finance this, you may want to begin looking into ensuring your credit score is as high as it can be. First, you should contact one of the three main credit reporting bodies to make sure that you know what your credit score is – each reporting body is required to give you at least one free credit report per year. Then you can use two main methods to try and get your score to as high as possible if it is not where you want it to be.
- Pay Down Debt – First, you should see how much outstanding debt that you have. This is typically in the form of credit card debt. The current outstanding debt that you have is a major contributor to your credit score. You should pay down as much of this is possible. If you currently have high credit card balances and you pay them off, you will be astonished as to how quickly your credit score will rise. Make sure that you put enough time aside to do this, as your credit score only updates once a month.
- Find Errors – You’d be surprised at how many people have errors on their credit reports. Misreporting happens all the time and it’s a problem that many people don’t realize they have. This is why it is so important to make sure that you keep an eye on your credit report – not doing so could be having negative effects on it. Once you find an error, you can fill out a form with proof of the mistake and submit it to the reporting body. If you don’t think this will work, you can actually contact credit restoration companies that will act on your behalf for a fee. This is a great investment if you believe that you have errors on your report.
Credit Score: The Risk
After reading most of the content on this page, you probably feel that there are many advantages to getting a personal loan to start a business. In fact, you may be wondering why all new business owners don’t get just personal loans to start businesses. The answer comes down to the risk. Just like lenders will use your personal credit score to assess whether you are eligible for the loan. The loan itself will also impact your credit score.
When you get a business loan, the responsibility of the loan goes against your business credit score. If you fail to make payments on time, or if you default on the loan, your business credit score will be damaged. In the case of a personal loan, your personal credit score will be damaged. In addition, the bank will be able to seize personal property if it is a secured loan – this doesn’t happen with normal business loans. That’s why it is extremely important that you understand the risks of using a personal loan to fund your business. You could potentially lose valuable assets and put the financial safety of your family at risk. For this reason, it is advised that you don’t borrow enough to where it could seriously impact your financial health. In addition, you shouldn’t use a personal loan to try and enter a risky industry – taking a risk with your credit score and personal assets is most likely not worth it.
Aside from the above-mentioned risks to your credit score and personal assets, there are a couple more drawbacks that should be considered when assessing whether or not you should use a personal loan to fund your business. Below are some of the other additional risks involved in personal loans for business:
- Ability to Attain Personal Finance – Even if you make payments on time and don’t default on your loan, having loan for business ads additional leverage to your portfolio that will make it harder for you to borrow more money for personal uses. For example, if you decide you want to buy a home or a car, a lender might view your personal loan for business as too much debt – this could result in them not wanting to lend you additional money. Remember: a personal loan for business is tied directly to your financial portfolio.
- Interest Rates (Varies) – While many people may find that personal loans for small business have favorable interest rates. Others will find that this is not the case. If you have a poor credit score, or a short borrowing history, you may find that you interest rate for a personal loan is quite high.
- Different Terms – With a lot of business loans lenders make sure to customize the loan to fit the needs of the business. Lenders are well versed in different industries and are able to tailor loans to fit the business model that you have. For example, term times may be different in a certain business loan than they would be in a personal loan.
Tips and Tricks
As with any form of finance, it’s important to approach the subject with knowledge. You don’t want to head into applying for personal loans without a firm grasp of the industry and how it works. There are a few things to consider when you begin your journey in applying for personal loans. Firstly, you should always make sure that you are fully aware of the companies that you are applying to – make sure to check customer reviews online. If you’re using a traditional lender you’d be surprised about how many bad experiences some customers have. If you’re using an online lender, you want to make sure that you’re giving your personal information to a company that you can trust.
Secondly, make sure that you get a full break down of the loan that you’re receiving. With personal term loans, many people think that the only responsibility you have is the loan interest rate. With many lenders, this is not the case – there can be plenty of fees and charges that you are not made aware of in order to entice you with the interest rate. The best way to compare the finance you’re getting is to ask you lender for a total cost of the loan – this will be the total amount of money you pay back by the maturity of the loan. Comparing total costs is the only way to have a real understanding of if you’re saving money.
Lastly, make sure to do your comparisons before you actually apply for loans. Whenever you apply for a loan you will be hit with a credit check on your report, this will damage your credit score. Many borrowers don’t realize this and apply for a range of loans, only to find out that each time they do so their credit score is damaged. If you do this, you could end up ruining you ability to get a personal loan for the foreseeable future. Check if your lender only does a ‘soft credit check’ – this means that their credit checks will not damage your score. If they use hard credit checks, you should only apply if you are certain they are a lender that you want to work with.
After this page you should be equipped with all the tools you need to understand if a personal loan is right for your business. As mentioned previously, you should only use a personal loan if you are the sole owner of your business, or if your partners are contributing the same amount of capital. Personal loans for business are a really great option for those who are entering a stable market and have a good business plan. Although the viability of your business will not be a factor in a lender giving you money, having a business plan is crucial in understanding if your company is worth risking a personal loan on.
Never borrow more than you can afford to pay back. Taking out a loan can have serious implications for the financial wellbeing of your family. When you begin to discuss with lenders about getting a personal loan, ask them if there are any alternatives that they may be able to offer you which will have less personal exposure. Opening a business is an exciting point in your life, make sure to shop around so that you know you’re getting the best deal possible – that’s what the best business owners do.
If you’re looking to find creative ways to fund your business, you may be considering a range of different types of finance. Obtaining a business loan with no business credit can be difficult – some people turn to personal loans to obtain the finance they’re looking for.
We receive a lot of questions about personal loans for business. There’s a chance that you may have the same questions about this popular topic. Below are some of the most common questions we’ve received.
Business Loan with Bad Credit
If you have questions about business loans for bad personal credit, take a look at the questions below:
How to get a business loan with bad personal credit?
If you have an established business history, you won’t need to worry too much about your personal credit. You can use your business credit score. If you don’t have a business credit score, things may get a bit trickier. You can use online lenders or try to secure the loan against the value of an asset. Learn more about getting a business loan with bad credit.
How to get a business loan with poor personal credit?
Business loan via collateral for startup when personal credit is horrible?
Business Loan Without Personal Credit
If you want to avoid using your personal credit score when obtaining a business loan, this list of questions is for you. Check it out:
How to get a business loan without using personal credit?
How to get a business loan without personal guarantee?
What if I signed a personal guarantee for a business loan?
How are business loans when you've had a personal bankruptcy?
How to get loan for business without affecting personal credit?
If you want to get a loan for a business without affecting your personal credit, you need to make sure the loan is not attached to your credit profile. Many businesses borrow against their business’s instead of personal credit profiles. This can help you avoid affecting your personal credit. Also look into minority small business loans if you meet the qualifications.
How to get business loans for an LLC without personal credit?
How to get a small business startup loan without personal credit check?
How to get a business loan without effecting your personal financing?
Why business loan not reported on personal credit?
If you haven’t found what you’re looking for in the above sections, take a look at some of our general FAQs below.
How is a business loan different from a personal loan?
A business loan is a loan against your business, it doesn’t impact your personal credit score. Also, your business is responsible for paying back the loan – not you. There is also the option of business line of credit. Read more: How to get a business line of credit?
What information do I need to apply for a personal business loan?
This will depend on the lender. You’ll typically need financial information, statements, and a reason for applying for the loan. Discuss the requirements with your lender before applying. Also see if you qualify for specialized programs such as small business loans for minority women.
How to record loan to business on personal taxes?
When I make a personal loan to my business can I charge interest?
Do banks look at your personal credit or start up business credit when applying for a new loan?
How much interest should I charge my business for a personal loan?
How much of a personal loan can I get for a business?
This will depend on your personal financial circumstances. You can borrow as much as you want via a personal loan if you qualify. Just remember, personal loans can often have high interest rates when they’re not secured – you need to make sure this form of financing is affordable for your business. If you’re a service member or formally in the service then try for a veteran small business loan.
How is business interest expense deductible on a personal loan?
How to get a personal loan to start a business?
You can apply for a personal loan from a variety of different lenders. Most personal loans don’t require you to declare a purpose for the loan. Feel free to apply for a loan from a lender and then use it towards your business expenses. Just make sure you can afford the interest rates first. Remember there are also free grants for small business startups if you can’t get a loan.
How to get rid of business loan which has your personal guarantee?
What if you get loan on personal vehicle then use for business?
What should the interest rate be for a personal loan to a business?
How does a business loan differ from a personal loan?
How to take a personal loan as a small business from family member?
When doing freelance do you get a business loan or personal loan?
If I own a business, do I list what I own in personal loan application?
How to get a personal loan after starting your own business?
How do I know if I want a personal or business loan?
This will depend on what you’re eligible for. If you can get a business loan, it’s probably the best option – it leaves your personal finances more protected. Also consider the best small business credit card offers to fund some expenses.