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Personal Business Loans: Everything You Need to Know

Personal Business Loans: Everything You Need to Know
Susan Guillory
Susan GuilloryUpdated May 20, 2021
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Having enough funds to cover not only regular business expenses but also unforeseen ones can be a challenge for small business owners. And for many, a traditional business loan may not be an option if they haven’t been in business long enough, don’t make enough in revenues, or don’t have good business credit.If that’s your situation, there’s still one avenue that can provide the capital you need to run or grow your business: a personal loan for business use.

What is a Personal Business Loan?

A personal loan for business startups or business expenses  is simply a personal loan that you qualify for based on personal credit scores, income, and possibly assets. For personal loans in general, a personal credit score of 670 or above will give you the best options, but it can be possible to get a loan with a lower score.A personal loan may be taken out for any number of purposes, and most personal loans don’t have requirements about what you can use them for. You could use the money to remodel your home, pay off credit cards, or grow your business.Just as with many types of small business loans, when you take out a personal loan, you receive a lump sum up front and then make monthly payments, including interest, on the amount you borrowed for a fixed number of months.Note: Not all lenders want to make personal loans for business purposes. Check with any lender you’re considering before you apply to make sure there are no restrictions against business use.

Business Loans vs. Personal Loans

You may well be wondering what the difference between a business and personal loan is, given that either might be used for business expenses. Both essentially function the same way in that you apply for a loan, and, based on certain criteria, you’re either approved or denied for that loan. If approved, you receive the funds and start paying the lender back, with interest, over time.There are more similarities. Consider both types of loans from a tax perspective. With either a business or a personal loan, you may be able to deduct the interest on your taxes if you use the loan money for business expenses. And you can’t deduct interest for a business loan or a personal loan if you use the funds for personal expenses. But there are differences, too. When considering you for a business loan, a potential lender may look at your business credit history and revenue, and the loan might be harder to secure if your business is just starting up. A personal loan application will likely want information about your personal credit and income and/or assets. What’s more, taking out a business loan (if you can) may help your business build its credit (the same goes for business credit cards and vendor lines of credit). Every time you pay your loan installment on time, that data is reported to business credit bureaus, which  over time may build your business’s credit history and increase its credit score.However, taking out a personal loan to start a business will not help your business credit in any way Your loan repayments will be reported to the personal credit bureaus, and could help your personal credit, though.Recommended: Does a Business Loan Affect Your Personal Credit Score?

Pros of Personal Loans for Business

There are other differences between the two types or loans which may make personal loans appealing to you.
  • Applying involves less documentation than business loans typically require.
  • Approval is usually faster than for a business loan.
  • You should be able to get your money in a lump sum, which is not always possible with a small business loan.

Cons of Personal Loans for Business

There are also potential drawbacks to personal business loans.
  • You may not be able to borrow as much as you would with a conventional business loan.
  • It won’t help build your business credit.
  • If you default or are late with your payments, it can count against your personal credit.
  • Not all lenders will issue personal loans for business purposes.
Recommended: Business Bank Account vs Personal Account

Where to Find Personal Business Loan

If you’ve decided to take out a personal loan to start a business or grow one, shop around for the best terms. A great place to begin is with a bank or credit union you already have a relationship with, but don’t limit yourself only to that option.And before you start looking at personal business loans, seriously consider a business loan instead. Unless you absolutely know you won’t qualify for one, it’s worth a little research to see what options you might be eligible for, since you may be able to build your business credit and realize tax savings. The Small Business Administration has several programs for entrepreneurs. Understanding SBA loans may seem complicated, but if you have questions, you can contact the SBA directly or your bank if it offers SBA loans.It’s also wise to compare small business loans to personal loans to see which offer you the best interest rates and terms. You might find a financing option you wouldn’t have otherwise been aware of.

Lenders Who Offer Personal Business Loans

Curious about lenders who offer personal business loans? This sampling of lenders came from the Google search query “best personal business lenders”:
LenderRates start atMinimum Time in BusinessCredit Score RequiredLoan Amount
Rocket LoansAPR starting at 5.970%Approval is largely based on credit score, income, and amount of existing debt Contact Rocket Loans for more informationApproval is largely based on credit score, income, and amount of existing debt Contact Rocket Loans for more informationUp to $45,000
AvantAPR starting at 9.95%First-time business owners may qualify Contact Avant for more informationBorrowers typically have credit scores between 600-700$2,000 to $35,000
UpgradeAPR starting at 5.94%First-time business owners may be approved Contact Upgrade for more informationUpgrade assesses applicants’ credit score, usage, and history Contact Upgrade for more informationUp to $50,000
FaaSfundsAPR starting at 5.99% APRNo minimum580Up to $35,000
All information was accurate as of 4/14/21.

Alternatives to Personal Business Loans

Before you apply for a personal business loan, investigate your other options. There are alternative small business loans that could help you get the funds you’re seeking, even if you don’t have great credit. These include short-term business loans, merchant cash advances, and invoice factoring.

The Best Time to Take Out a Personal Loan for Your Own Business

While there are several scenarios in which you might need an injection of cash, the best time to take out a personal loan for your business is before you need the money. That might seem counterintuitive, but it would give you the time you need to carefully research your financing options and take advantage of the best rates possible.In contrast, if you apply for financing that you need immediately, you may pay more for the convenience.A few scenarios when you might need extra capital include:
  • Operating during a slow season
  • Expanding operations
  • Purchasing larger orders of inventory
  • Capitalizing on business opportunity
Some businesses have ebbs and flows in revenue, so having access to capital during the  ebbs can ensure that you can easily cover your business expenses. And if it’s time to hire staff or stretch out into larger office space, a loan can make the transition easier.Many vendors offer discounts for bulk inventory purchases, but if you don’t have the capital to take advantage of a lower per-unit price, you could be missing out on higher profit margin. Taking out a personal business loan can ensure you’re getting the best deal.And speaking of deals, if an opportunity arises to, for example, purchase a competing business, a loan can also help you corner the market.Recommended: Startup Business Loans (Bad Credit, No Collateral)

How to Qualify for a Personal Business Loan

While lenders may have slightly different requirements when it comes to approving loan applicants, there are a few factors that are commonly considered.The first is your credit. Because this is a personal loan, it’s your personal credit score and history that lenders will look at. The better your credit score, the lower the interest rate and the better the terms you may qualify for.The next factor is your repayment history. Have you paid credit cards and installment loans on time, or have you had late payments or other delinquencies? This will determine how a potential lender views you as a risk or good investment.And finally, another key factor is your personal income. You may be asked to provide a few years’ worth of income tax documents or paycheck stubs to prove your income. Lenders want to feel confident in your ability to repay the loan with what you’re making. Before applying for a personal business loan, it’s a good idea to know how lenders will see you. Check your personal credit score to understand what type of loans you might qualify for.

Applying for a Personal Business Loan

Applying for a personal loan for your own business can be a fast and painless process once you’ve narrowed down your options to those you qualify for and that offer terms you are happy with. (Side note: if you’re curious about how to get a business loan, it’s a similar process, though you’ll provide more information about your business).Streamline the application process by having several documents ready, including:
  • Recent pay stubs, W2s, and/or taxes returns
  • Government-issued photo ID
In the application process, you will be asked personal details like:
  • Social security number
  • Date of birth
  • Contact information
  • Employment and income details
  • Gross monthly income
  • Mortgage or rent payment
You will also be asked what amount you would like to borrow.Once a lender has reviewed your application, you’ll be given an answer or asked to provide additional information. Lenders may vary in how quickly they deposit the loan funds, but some can deposit them the next business day.

Are Small Business Loans a Good Idea?

 You may wonder: is it a good idea to get a loan to start a business? Won’t it just put me in debt?The truth is that only you can answer the question, since you know your business and its plans for the future. If taking out a loan, either personal or business, will help you grow your company and increase revenues, then it certainly can be a valuable investment.On the other hand, taking out a loan because you can’t afford to pay basic expenses could be a problem if you still can’t cover them after a few months, even with the loan. You risk defaulting on the loan, which could negatively impact your credit.

Personal Business Loans: Capital When You Need It

If you’re serious about taking out a loan to finance the launch or growth of your business, be sure to compare personal loans to find the best rate for your needs. The lowest interest rate may not actually be the best deal for you, especially if the loan needs to be paid back in a matter of months rather than years, which might mean a larger monthly payment you can’t afford.Consider all the factors that impact you: how much you’re eligible to borrow, how much you would pay in interest, what your monthly payment would be, whether there are fees, and how long you have to pay back the loan. If you already have a relationship with a bank, taking out a personal business loan there may make sense, but know that there are plenty of other online lenders who will compete to get your business.At the same time, you may want to explore your business financing options. With Lantern by SoFi's online loan marketplace, it's easy to access offers from top business lenders matched to your needs and qualifications. It only takes one short application and there's no commitment.

Frequently Asked Questions

How Do I Get a Personal Business Loan?
Can a Business Loan Be Used for Personal Use?
What is a Personal Business Loan?
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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