Business Finance Tips: Can You Take Out a Personal Loan For Business?

 Darren Wilson
  Dec 13, 2018

Whether you already own a business or you're thinking about starting one, you may benefit from a personal loan for the business. Here's how.

543,000 small businesses are started each year in the United States.

Are you one of them?

The decision to open a business is exciting, but there are many variables that come into play, such as the route to funding your businesses.

Personal Loan

Fortunately, it's possible to use a personal loan to help you get off the ground or help you pay for other expenses. There is a myriad of reasons why taking out a personal loan for business could be the answer you're looking for.

What Is A Personal Loan?

A personal loan is a loan that's borrowed to cover personal expenses. These can include events like education, home repairs, or to consolidate debt. Interest rates for personal loans are typically lower than credit cards and have fixed monthly payments.

The length of a personal loan can be anywhere between 2-5 years depending on the amount borrowed. The amount you can borrow could be as low as $1,000 even stretching towards $100,000 if need be. With a personal loan, you are able to choose the amount you need, and once it is gone, there is no more money to loan.

To apply for a personal loan you will need your personal information, like a place of employment, income documents, and the lender will check your credit. Personal loans are fairly easy to acquire, especially if you have good credit.

What Is A Business Loan?

A business loan is lent to an individual specifically for business purposes. You can use a business loan for virtually any business expense, like purchasing a building, product, employee salaries, and so on.

The amount borrowed on a business loan can be much higher than a personal loan, sometimes reaching close to half a million dollars or more. This depends largely on your credit score, and lenders must see an excellent credit to be a good candidate for a business loan.

In addition to having an excellent business credit score, lenders will want to know how the money will be spent in your businesses, so make sure to have a clear plan of action when you apply. Professionalism is key.

Business loans also require collateral in case the borrower does not fulfill the agreed upon payments.

Why a Personal Loan Could Be Best for Business

When it comes to comparing business loans and personal loans, a personal business loan seems like a wise decision.

With many hoops to jump through and a laundry list of requirements to gain a business loan, some budding entrepreneurs may find it discouraging, especially if their business is brand new. Lenders are crunching down on the requirements for business loans, making it more difficult to be accepted.

Personal loans are also unsecured, meaning there's no collateral involved. Lenders will usually not ask about your business or ask to see a business plan, so you have the freedom to use the loan however you want.

If you're in need of money quickly, personal loans are available to you very quickly, usually within days of applying. In contrast, business loans can take up to 90 days to receive the money.

Sometimes our personal credit score is better than our business credit score, or we might be lacking one completely. In this case, seeking a personal loan could be beneficial, as they only review your personal credit score and finances, rather than those related to your business.

What if I Have Bad Credit?

Bad credit happens to good people. Missed payments and high debt-to-income ratios sometimes take a stab at your credit score.

However, personal loans are a bit more forgiving than business loans in this area. While business loans are more strict on credit, personal loans can be borrowed with less-than-perfect credit. The only caveat is that your interest rate would likely be significantly higher than someone with excellent or good credit.

The best personal loans with low-interest rates typically need a credit score of 680 or higher. But a lower score isn't a lost cause. Seeking help through a credit union or other online lender could be a viable way to secure a personal loan with bad credit.

So, Should I Get A Personal Loan for Business?

That is your call! But a personal business loan could be a good business strategy if you need money quickly and have the funds to pay off the loan on time.

Here are some other reasons you may want to consider a personal loan for your business:

1. Your business Is Brand New

Because you need business credit to apply for a business loan, most new entrepreneurs apply for a personal loan, because they lack business credit. Business loans also get denied because if the age of the business is young.

2. Your Business Needs Are Not High

Smaller loan amounts are easier to handle when you get a personal loan, especially if your business demands are not crucial or expensive.

3. Personal Loans Are Less Expensive in the Long Run

With good credit and a low debt-to-income ratio, and the interest rate could be much less, meaning you can pay it off quickly.

Some Things to Consider

While personal loans sound wonderful for businesses, there are a few things to consider before applying

Lenders are going to be reviewing your personal financial history instead of your business history when applying for a personal loan. This means if you cannot make payments on time, or at all, your personal credit will suffer. Before applying, be certain you can repay the loan promptly.

Shop around before you commit. Many lenders offer different rates and loan amounts, and if you don't have stellar credit, you'll need to find a lender that caters to your situation.

Be aware of how much you'll owe at the end of the loan. If your rate is high, you could be paying nearly double what the loan cost. Calculate the cost and consider the risk before applying.

Personal Loans for Business: Are They Right for You?

Personal loans for business can be a wise business approach if you need fast cash or cash in small amounts. Seek out the best rates first and check your credit score before deciding to move forward with a personal business loan.

Interested in more business strategies? Check our business page to find out more.

Business Finance Tips: Can You Take Out a Personal Loan For Business?

Darren Wilson

I am Darren Wilson working as Outreach specialist who loves to read and travel. I wrote on various topics on various blogs irrespective of their sizes. My strong educational background and family support have been a broad base to research and write on various topics. Reading by night and writing by day keep me updated about the field I am working on.

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