Personal Loans for Business, Should You Go for It?

A personal loan for business is a loan for which the individual is liable even though the funds are used for business purposes.

At a Glance

Personal loans commingle business finances with personal finances, but if you don’t have any business credit history, it may be the easier route. Keep in mind that because personal loans don’t require business documentation, you could potentially get access to funds sooner than you would with a business loan.

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Advantages & Disadvantages

  • Minimal fees
  • Relatively easy process
  • Business credit history is not a factor
  • Leverages good personal credit
  • Loan amounts are capped
  • Reports to your personal credit history
  • Commingles business & personal finances

What Is A Personal Loan For Business?

A personal loan for business is a loan for which the borrower is personally liable, even though the funds are going to be put towards small business costs.

We're very fortunate to live in an era with limitless technology at our fingertips.

At no other point in history has it ever been so easy to start a business:

All it takes is an idea, a laptop with an internet connection, and some good old-fashioned hard work!

Still, even if you do get your business off the ground on your own, you may find saving the money to scale and expand to prove more challenging yet.

If the only thing keeping you from growing your business is money, you may have decided to explore the world of business loans and business financing.

Lenders must use strict qualifying criteria and underwriting processes to avoid investing in businesses that fail.

Although this strategy helps them mitigate their risk, a consequence of such stringent eligibility criteria is that new businesses lacking a credit history can have trouble getting access to funds.

Fortunately, the same technological advancements that have made it so easy for entrepreneurs to find success are also changing the way we shop for business loan products.

If you do encounter trouble qualifying for a small business loan, you may have other options:

A personal loan may be worth considering for your small business.

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How Do Personal Loans for Business Work

Here’s the key difference between personal loans that can be used for business and business loans:

Lenders put your business under a microscope when you apply for a business loan.

You may be asked to produce a business plan, your personal and business credit histories, multiple years of personal and business tax returns, financial statements, businesses licenses, and more.

Some business loans, called secured loans, require collateral like property or inventory to back the loan in case it goes into default.

Business loan contract terms may even require that you use funds for a specific purpose.

When applying for a personal business loan, your business’s credit history and financial outlook are not scrutinized.

Instead, your personal finances including your income and credit history are reviewed because you are personally liable for the loan.

It’s much like taking out a personal loan for any other big purchase like a home renovation project or a trip abroad.

If you're approved by a lender, they may deposit funds into the account of your choosing.

And you could use your loan for a variety of purposes!

Alternatives to Personal Business Loans

While personal business loans are one of the most popular options to finance your company's expenses, there are other alternatives out there. This practice is also known as Alternative financing, and what it means is a form of obtaining capital without going to a traditional financial institution. Most of these services are available online, making them incredibly convenient.

These options include, but are not limited to:

among many others!

It would be best if you took a good, hard look at your finances, so you know exactly where you stand. By doing this, you will be able to choose what fits best with your business. If you decide that a personal business loan is best, what do you need to do to qualify?

What Will a Personal Loan for Business Cost You?

You may be thinking:

This all sounds too good to be true… How much is it going to cost me?

Keep in mind, interest and fees vary depending on the lender you choose to borrow from and your credit history.

Poor credit will stick you with higher interest and fees.

Besides interest, other costs to consider when shopping for a personal loan include origination fees and other small expenses hidden in the fine print.

Let’s talk about these costs in detail:

Loan Origination Fees

A lender may charge an origination fee to process your loan.

The origination fee can be subtracted from the loan amount before you get the lump sum.

Your credit history is used to determine your origination fee amount, it can range anywhere from 0.99% to 6%.

For example, say you apply and get approved for a $10,000 loan.

If the origination fee is 2%, you’ll pay $200 for the origination fee.

The fee of $200 will be subtracted from your loan, and you’ll get $9,800 deposited into your account.

Be sure to factor in the origination fee when deciding how much to borrow since it can take a chunk out of the money you receive.

Learn more about Why Personal Credit Still Matters for Business 

Other Hidden Fees

Small print costs on small business personal loans are usually minimal.

In any case, read through your loan contract carefully before signing on the dotted line to avoid an unpleasant surprise down the road.

Lenders may charge a fee if you pay late or make a payment that’s returned for insufficient funds, for example.

A responsible borrower will understand the costs and implications if something unexpected happens.

Another small print fee to know about is a prepayment penalty.

Prepayment penalties are fairly uncommon for personal loans, but it’s an extra cost you’d probably want to know about ahead of time.

A flat fee or percentage prepayment penalty may be charged by a lender if you make advanced payments or pay a loan off completely before the repayment term ends.

Say you’re lucky enough to experience a cash windfall that can repay the entire debt:

It’s still going to cost you if the loan contract includes a prepayment penalty.

Alternative lenders that operate primarily online have exploded onto the scene offering loan products with limited fees across the board.

It’s possible to find a personal loan for your business with no origination fee, low fine print fees, and no prepayment penalty—

If you do your due diligence, that is.

Learn more about The Best Banks for Small Business Loans May Not Be Banks At All

Does a Personal Loan for Business Make Sense for You?

A personal loan for business makes sense for business owners who have limited business history, but a high personal credit score.

The truth is, you’ll probably have trouble qualifying for a low-cost personal business loan with bad credit.

Later in this post we’ll cover a few ways to improve your credit score to strengthen your loan application.

A personal loan for business also makes sense if time is a factor for you.

The process of turning in a personal loan application and getting approved can sometimes be faster than a small business loan.

As mentioned earlier, some business loans require collateral to protect the lender if the loan goes into default.

If you prefer not to pledge collateral to back your loan (or you don’t have any collateral to pledge) the good news is that personal loans are sometimes offered in good faith, and your signature on the agreement may be enough.

As with any major financial decision, you should carefully weigh the pros and cons of using a personal loan to operate your business before taking on debt.

Think of the loan as your own investment in the business.

Would you lend to someone with your business plan and model?

Be honest with yourself here. You should feel confident your business idea will perform well enough to make the loan worthwhile.

Here are the major advantages and disadvantages to consider before moving forward:

Advantages of Personal Loans for Business

Less Qualifying Criteria

Business credit history is one of the most important factors used to qualify you for a traditional small business loan.

New businesses without an established credit history may have trouble in this area.

The personal loan can be a shortcut to securing business financing because only your personal credit history is necessary.

Learn more about Funding Your Startup with a Personal Loan

Quick Funding

The application process for a personal loan may require less paperwork than a small business loan.

Some online lenders can get you approved within 24 hours.

Funds can potentially hit your account in a matter of days.

Learn more about the Fastest Way To Get A Business Loan

Good Personal Credit Can Help

If you have a strong personal credit score, it can help the approval process with a lender.

The terms of personal installment loans are simple:

You get the lump sum and make scheduled payments until the term ends, and fees are usually minimal.

Disadvantages of Personal Loans for Business

Intermingling Personal and Business Finances

Taking out a personal loan for your business will marry your personal and business interests.

This can be a bad thing if you run into financial difficulty in the future.

Non-payment of your personal loans will impact your personal credit history and possibly your personal assets.

Smaller Loan Amounts

Not pledging collateral limits the amount you can borrow, and you may have trouble getting a personal loan for a large amount.

Reports On Your Personal Credit History

This can be huge:

If your business goes under or you have cash flow problems, you’re still personally on the hook for your loan payments.

How To Qualify

Qualifying criteria varies by lender.

Lenders will look primarily at your income and credit score to determine if you’re a worthy borrower.

Have Great Personal Credit

The FICO score model is the scoring metric many lenders use to determine creditworthiness.

FICO scores range from 300 to 850.

Approval for a personal loan is possible with a score in the high-500s.

However, approval for a low interest rate and low fees will require a significantly stronger credit score.

Ultimately, a score in the mid-700s or higher will likely get you a better deal.

Demonstrate Ability To Pay On Time

If your credit score still needs some work, paying off some of your credit card debt can give you a little boost.

The most influential aspect of your credit score is your record of paying on time.

You probably won’t be able to rectify late payments overnight unless you dispute and have them removed.

Reduce Credit Utilization

However, the second most influential aspect of your credit score is the amount you owe in total and your revolving credit utilization.

This is where you may find some opportunity to improve your score.

Credit utilization refers to how much revolving credit you are using relative to total credit available.

For example, if you have a $5,000 credit limit and are carrying a $2,500 credit card balance, you’re utilizing 50% of your available credit.

Reduce your credit utilization to below 30%, and you may see some score improvement.

Many lenders now offer online application processes that allow you to electronically submit documents.

Some systems even automate pre-approvals which is good news for someone who wants a quick answer.

How to Get Started

In order to expedite the process, you should have certain documents ready.

Here’s what you’ll need to get started:

  • Driver's License
  • Bank Account Number
  • Bank Statements
  • Pay Stubs /W-2 forms
  • Credit Score
  • Personal Tax Return

Important Disclosures. Please Read Carefully.

Persons facing serious financial difficulties should consider other alternatives or should seek out professional financial advice. This website is not an offer to lend. is not a lender or lending partner and does not make loan or credit decisions. connects interested persons with a lender or lending partner from its network of approved lenders and lending partners. does not control and is not responsible for the actions or inactions of any lender or lending partner, is not an agent, representative or broker of any lender or lending partner, and does not endorse any lender or lending partner. receives compensation from its lenders and lending partners, often based on a ping-tree model similar to Google AdWords where the highest available bidder is connected to the consumer. Regardless,’s service is always free to you. This service is not available in all states. If you request to connect with a lender or lending partner in a particular state where such loans are prohibited, or in a location where does not have an available lender or lending partner, you will not be connected to a lender or lending partner. You are urged to read and understand the terms of any loan offered by any lender or lending partner, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you. By submitting your information via this website, you are authorizing and/or lenders and lending partners in its network or other intermediaries to do a credit check, which may include verifying your social security number, driver license number or other identification, and a review of your creditworthiness. Credit checks are usually performed by one of the major credit bureaus such as Experian, Equifax and Trans Union, but also may include alternative credit bureaus such as Teletrack, DP Bureau or others. You also authorize to share your information and credit history with its network of approved lenders and lending partners. For qualified consumers, our lenders offer loans with an Annual Percentage Rate (APR) of 35.99% and below. For qualified consumers, the maximum APR (including the interest rates plus fees and other costs) is 35.99%. All loans are subject to the lender’s approval based on its own unique underwriting criteria. Example: Loan Amount: $4,300.00, Annual Percentage Rate: 35.99%. Number of Monthly Payments: 30. Monthly Payment Amount: $219.36. Total Amount Payable: $6,581.78 Loans include a minimum repayment plan of 12 months and a maximum repayment plan of 30 months. In some cases, you may be given the option of obtaining a loan from a tribal lender. Tribal lenders are subject to tribal and certain federal laws while being immune from state law including usury caps. If you are connected to a tribal lender, please understand that the tribal lender’s rates and fees may be higher than state-licensed lenders. Additionally, tribal lenders may require you to agree to resolve any disputes in a tribal jurisdiction. You are urged to read and understand the terms of any loan offered by any lender, whether tribal or state-licensed, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

Lender’s or Lending Partner’s Disclosure of Terms.

The lenders and lending partners you are connected to will provide documents that contain all fees and rate information pertaining to the loan being offered, including any potential fees for late-payments and the rules under which you may be allowed (if permitted by applicable law) to refinance, renew or rollover your loan. Loan fees and interest rates are determined solely by the lender or lending partner based on the lender’s or lending partner’s internal policies, underwriting criteria and applicable law. has no knowledge of or control over the loan terms offered by a lender and lending partner. You are urged to read and understand the terms of any loan offered by any lenders and lending partners and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

Late Payments Hurt Your Credit Score

Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.