by Lyle Daly | Feb. 22, 2019
A personal loan may be just the financing you need to bolster your business.
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For most business owners, there will come a point when you need more money than you have available. After all, you don’t want to miss out on the perfect opportunity to grow your business because you’re trying to bootstrap everything.
The obvious solution is a business loan, but those aren’t always the most convenient or accessible option. That’s why one popular alternative is getting a personal loan and using that to pay for your business. Let’s dive in to whether that’s allowed and if it’s an avenue worth pursuing.
Yes, you can typically use a personal loan for your business. That could be for any type of business expense, including purchasing equipment, paying the rent on a new storefront, hiring a contractor, or whatever else your business needs.
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In fact, you can use a personal loan for just about any expense you have. Personal loans are versatile in that there’s very little you can’t do with them.
However, a lender can put restrictions on the ways you can and can’t use your personal loan. That’s why it’s always a good idea to double-check with the lender regarding its rules and restrictions. Fortunately, it’s unlikely a lender will have a problem with you using a personal loan for business purposes.
There are advantages and disadvantages to using a personal loan for your business instead of a business loan. Here are the benefits of a personal business loan:
A personal business loan also has a few notable drawbacks:
If you’re not sure which type of loan is the right choice for your business, there are a couple situations when a personal business loan is the best bet.
You’ve been in business less than two years -- Lenders usually want to see at least two years in operation and profitability before they’ll consider approving you for a business loan. If your business just got started, then a personal loan is a much more realistic option.
You’re borrowing $10,000 or less -- Personal loans can be for almost any amount, whereas business loans are generally for larger amounts because the lenders want to ensure they make some money from interest charges (although there are smaller business microloans available). If you don’t need to borrow that much, then a personal loan is a good choice, especially since it will also have a simpler application process.
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Before you think about applying for a business loan, you need to make sure that you’ll qualify. While every lender’s requirements are different, most will want to see:
You need $100,000 or more -- Whenever you’re looking at borrowing six figures or more for your business, you should focus on business loans. Lenders regularly issue business loans for over $100,000, and securing the lowest possible interest rate is even more important when you’re borrowing so much.
You need more than five years to pay back your loan -- Since you can get a much longer term with a business loan than with a personal loan, the former is the way to go if you want more time and lower monthly payments.
You’re getting the loan for something specific -- One big advantage of business loans is that there are all types of options available depending on why you need the loan. For example, you could get a business real estate loan to open a new location or an equipment loan for an important tool you need.
If you know exactly what your loan is for, then you may get a better deal by going with a business loan specifically intended for that purchase.
Personal loans and business loans are far from your only financing options. Other popular options include:
Business credit cards -- Business credit cards can be an excellent financing option for business owners, especially when your business is just getting started. They include several helpful perks:
-- If you’ve built up equity in your home, you can take advantage of that through either a home equity loan or a home equity line of credit (HELOC). This is considered one of the riskier ways to finance a business, because your home will be the collateral on the money you borrow. On the other hand, you’ll be able to borrow the money at a very low interest rate.
A personal loan could be exactly what you need to take your business to the next level, assuming you use it wisely. To maximize your chances of success, you should do the following before you apply for a personal business loan:
Once you’re all set and you know how much money you need, you can enter that amount, along with your credit rating, location, and the intended purpose of your loan, in the table on our best personal loans page.
With that information, we can show you lenders that could issue your loan plus some important loan details, including the term, APR, and monthly payment amount.
We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.
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