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Personal Business Loans: What You Need to Know

A personal loan for business may be an option when other forms of business financing don't work. Learn where to find a personal loan and the pros and cons.

Jackie VelingMay 20, 2021
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Small-business owners have plenty of hurdles to clear, and one of the highest is finding startup financing. If your business is too new to qualify for a traditional business loan, an unsecured personal loan may make sense for those who receive an affordable rate.

A personal loan is money borrowed from a bank, credit union or online lender that can be used for any number of purposes, often to fund a business. Most personal loans are unsecured, which means they don’t require collateral, and you pay them back in fixed monthly payments, typically over one to seven years.

As long as your lender has no restrictions against using a personal loan for your business, you can use the money to purchase equipment and inventory, kick-start your marketing efforts or put toward other costs you encounter when starting a business.

Summary of Personal Business Loans: What You Need to Know

Our picks for

Borrowers with bad credit

Upstart
Check rate

on Upstart's website

Upstart

4.5

NerdWallet rating 
Upstart

Est. APR

6.95 - 35.99%

Loan Amount

$1,000 - $50,000

Min. Credit Score

580
Check rate

on Upstart's website


Min. Credit Score

580

Key facts

Upstart is a good option for borrowers with low credit scores and strong earning potential.

Pros

  • Accepts borrowers new to credit.

  • Able to fund loans within one business day.

  • Offers direct payment to creditors with some debt consolidation loans.

Cons

  • Borrowers can choose from only two repayment term options.

  • Charges origination fee.

Qualifications

  • Minimum credit score: 580.

  • Minimum credit history: None, this lending platform accepts borrowers with credit history too limited to produce a FICO score.

  • Minimum gross income: $12,000.

  • Employment: Full-time job, full-time job offer starting in 6 months, a regular part-time job, or another source of regular income.

  • Must have U.S. residential street address where borrower resides (unless military personnel on active duty).

  • Must be at least 18 years old.

  • Valid email account required.

  • Personal bank account with U.S. routing number required.

Available Term Lengths

3 to 5 years

Fees

  • Origination fee: 0% - 8%.

  • Late fee: 5% of past due amount or $15, whichever is greater.

Disclaimer

The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 24.4% and 36 monthly payments of $36 per $1,000 borrowed. There is no down payment and no prepayment penalty. Average APR is calculated based on 3-year rates offered in the last 1 month. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.

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Lending Club
Check rate

on LendingClub's website

LendingClub

4.5

NerdWallet rating 
Lending Club

Est. APR

8.05 - 35.89%

Loan Amount

$1,000 - $40,000

Min. Credit Score

600
Check rate

on LendingClub's website


Min. Credit Score

600

Key facts

LendingClub loans have limited term lengths, but you can add a co-signer or borrower to help your chances of qualifying for a lower rate.

Pros

  • Offers co-signed and joint loan options.

  • Offers direct payment to creditors with debt consolidation loans.

  • Soft credit check with pre-qualification.

Cons

  • Borrowers can only choose from two repayment term options.

  • Rates are high compared to other fair-credit lenders.

  • Charges an origination fee.

Qualifications

  • Minimum credit score of 600. LendingClub uses FICO 8 credit scoring model.

  • Minimum credit history of three years.

  • Debt-to-income ratio of less than 40% for single applications, 35% combined for joint applicants.

Available Term Lengths

3 to 5 years

Fees

  • Origination fee: 1% to 6%.

  • Late fee: Greater of $15 or 5% of payment after 15-day grace period.

Disclaimer

A representative example of loan payment terms is as follows: you receive a loan of $13,411 for a term of 36 months, with an interest rate of 12.16% and a 5.30% origination fee of $711, for an APR of 15.99%. In this example, you will receive $12,700 and will make 36 monthly payments of $446.46. Loan amounts range from $1,000 to $40,000 and loan term lengths are 36 months or 60 months. Some amounts and term lengths may be unavailable in certain states. APR ranges from 8.05% to 35.89% and is determined at the time of application. Origination fee ranges from 3% to 6% of the loan amount. Lowest APR is available to borrowers with excellent credit. Advertised rates are subject to change without notice. Loans are made by LendingClub Bank, N.A., Member FDIC (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Loans are subject to credit approval and sufficient investor commitment before they can be funded or issued. Certain information that we subsequently obtain as part of the application process (including but not limited to information in your consumer report, your income, the loan amount that your request, the purpose of your loan, and qualifying debt) will be considered and could affect your ability to obtain a loan from us. Loan closing is contingent on accepting all required agreements and disclosures at Lendingclub.com. “LendingClub” is a trademark of LendingClub Bank.

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Our picks for

Borrowers with fair credit

Upgrade
Check rate

on Upgrade's website

Upgrade

5.0

NerdWallet rating 
Upgrade

Est. APR

5.44 - 35.47%

Loan Amount

$1,000 - $50,000

Min. Credit Score

580
Check rate

on Upgrade's website


Min. Credit Score

580

Key facts

Customizable loan features and discount opportunities make Upgrade a solid loan for fair- and bad-credit borrowers with strong monthly cash flow.

Pros

  • Allows secured, co-signed and joint loans.

  • Offers rate discount with direct payment to creditors on debt consolidation loans.

  • Offers a .5% rate discount for setting up autopay.

Cons

  • Charges origination fee.

  • Charges late fee.

Qualifications

  • Minimum credit score: 580.

  • Minimum annual income: $35,000; average borrower income is $87,000.

  • Minimum credit history: 3 years.

  • Minimum number of accounts on credit history: 2.

  • Minimum monthly free cash flow: $800.

  • Maximum debt-to-income ratio: Varies between 55% and 65% including the loan you’re applying for and mortgage payments. To see your post-loan DTI, calculate your monthly payments on a personal loan, and then add them to your debt-to-income calculation.

  • Average loan amount is $10,000.

  • Average repayment term is 40 months.

Available Term Lengths

3 to 5 years

Fees

  • Origination fee: 2.9% to 8%.

Disclaimer

Personal loans made through Upgrade feature APRs of 5.94%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade's lending partners. Information on Upgrade's lending partners can be found at https://www.upgrade.com/lending-partners/. Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor.

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RocketLoans
See my rates

on NerdWallet's secure website

Rocket Loans

4.0

NerdWallet rating 
RocketLoans

Est. APR

5.97 - 29.69%

Loan Amount

$2,000 - $45,000

Min. Credit Score

640
See my rates

on NerdWallet's secure website


Min. Credit Score

640

Key facts

Rocket Loans’ personal loans can be inflexible compared to competitors, but they stand out for their low rates and same-day funding.

Pros

  • Soft credit check with pre-qualification.

  • Competitive rates among fair-credit lenders.

  • Offers a .3% rate discount for setting up autopay.

  • Able to fund loans the same day.

  • Offers small loans of $2,000.

Cons

  • Charges origination fee.

  • Does not offer direct payment to creditors with debt consolidation loans.

  • No option to choose or change your payment date.

  • Borrowers can choose from only two repayment term options.

  • No co-sign, joint or secured loan option.

Qualifications

  • Minimum credit score: 640; borrower average is 710.

  • Minimum credit history: Over two years.

  • Minimum annual income: $24,000; borrower average is $85,000.

  • Maximum debt-to-income ratio: 40% or 70% including mortgage; borrower average is 14%.

  • Must be at least 18 years old (19 in Alabama and Nebraska).

  • Must provide Social Security number.

Available Term Lengths

3 to 5 years

Fees

  • Origination fee: 1% to 6%.

  • Late fee: $15 after 10-day grace period.

  • Unsuccessful payment fee: $15.

Disclaimer

All personal loans are made by Cross River Bank, a New Jersey state chartered commercial bank, Member FDIC, Equal Housing Lender. All loans are unsecured, fully amortizing personal loans. Eligibility for a loan is not guaranteed. Please refer to our Disclosures and Licenses page for state required disclosures, licenses, and lending restrictions. Borrower must be a U.S. citizen or permanent U.S. resident alien at least 18 years of age (in Nebraska and Alabama a borrower must be at least 19 years of age). All loan applications are subject to credit review and approval. Offered loan terms depend upon your credit profile, requested amount, requested loan term, credit usage, credit history and other factors. Not all borrowers receive the lowest interest rate. To qualify for the lowest rate, you must have excellent credit, meet certain conditions, and select autopay. Rates and Terms are subject to change at any time without notice. Please refer to RocketLoans.com and our Terms of Use for additional terms and conditions.

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Our picks for

Borrowers with good to excellent credit

Laurel Road Personal Loan
See my rates

on NerdWallet's secure website

Laurel Road Personal Loan

5.0

NerdWallet rating 
Laurel Road Personal Loan

Est. APR

7.25 - 22.81%

Loan Amount

$5,000 - $45,000

Min. Credit Score

700
See my rates

on NerdWallet's secure website


Min. Credit Score

700

Key facts

Laurel Road’s personal loans are a strong fit for good-credit borrowers who qualify for a low rate or fair-credit borrowers who can add a co-signer.

Pros

  • Option to include a co-signer.

  • No origination fee.

  • Offers a .25% rate discount for setting up autopay.

  • Offers direct payment to creditors.

  • Able to fund loans within 24 hours.

Cons

  • High minimum loan amount.

  • Charges late fee.

  • Requires several years of credit history.

Qualifications

  • Minimum credit score: 700 or 660 with a qualified co-signer.

  • Minimum credit history: Four years and two open accounts.

  • No more than three credit inquiries in the past six months.

  • Maximum debt-to-income ratio: 43% (including mortgage).

  • No delinquencies.

  • Have not filed for bankruptcy.

  • Must be a U.S. citizen or permanent resident.

  • Employed for more than two years.

Available Term Lengths

3 to 5 years

Fees

  • No origination.

  • No prepayment.

  • Late fee: $28 after 15 days.

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Discover
Check rate

on Discover's website

Discover® Personal Loans

5.0

NerdWallet rating 
Discover

Est. APR

6.99 - 24.99%

Loan Amount

$2,500 - $35,000

Min. Credit Score

720
Check rate

on Discover's website


Min. Credit Score

720

Key facts

Discover’s rates aren’t as competitive as other lenders', but its seamless online experience, strong customer support and borrower perks make up for it.

Pros

  • No origination fee.

  • Offers direct payment to creditors.

  • Offers mobile app to manage loan.

  • Able to fund loans within one business day.

  • Wide variety of repayment term options.

Cons

  • Charges late fee.

  • No co-signed, joint or secured loan options.

  • No rate discount for autopay.

Qualifications

  • Minimum credit score: 720; borrower average is 750.


  • Must be a U.S. citizen or permanent resident.

  • Must be at least 18 years old.

  • Must have a minimum household income of $40,000.

Available Term Lengths

3 to 7 years

Fees

  • Origination fee: None.

  • Late fee: $39.

Disclaimer

This is not a commitment to lend from Discover Personal Loans. Your approval for a loan is determined once you apply and is based on your application information and credit history. Your APR will be between 6.99%-24.99% based upon creditworthiness at time of application for loan terms of 36-84 months. For example, if you get approved for a $15,000 loan at 6.99% APR for a term of 72 months, you’ll pay just $256 per month. Our lowest rates are available to consumers with the best credit. Many factors are used to determine your rate, such as your credit history, application information and the term you select. Not all applications will be approved.

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Benefits of using a personal loan to start a business

Flexibility: You can typically use the funds from a personal loan however you want, whether it's toward marketing, product development, office supplies or another purpose.

Low rates: Depending mostly on your credit score, personal loans can have lower annual percentage rates than other financing products, such as credit cards, saving you money over the lifetime of the loan. They also have fixed payments that ensure your loan is paid back within a certain time frame, so you'll avoid compound interest, or interest on top of the original interest.

Easier to qualify: If you’re just starting your business, you may have more luck qualifying for a personal loan than a business loan. When underwriting business loans, lenders look at your company’s revenue and time in business, along with your personal credit score. For a first-time business owner with a brand new business, you won’t have some of the history that small-business lenders are looking for.

Personal loans are underwritten based primarily on your credit score and your income. That means you can include other income sources — maybe you still have your 9-to-5 job, or maybe you have rental properties — to supplement the initial trickle of income you’ll earn from your new venture.

Fast funding: The majority of personal loans are funded within one week of approval, though if you choose to apply with an online lender, you’ll likely receive funds by the next or even same business day. This may be faster than some business loans. For example, the process of applying for and receiving a traditional SBA loan can take 30 days to a few months.

Drawbacks of using a personal loan to start a business

May not receive a full tax deduction: Interest paid on a personal loan is typically not tax deductible, unlike interest paid on business loans. However, there’s an exception for when you use a personal loan to cover business expenses. To get the full deduction, you’ll need to make sure no portion of the loan is used for another type of expense.

Personal credit or assets could be at risk: If you take out an unsecured personal loan and fail to repay it, your credit may take a hit. This will make it harder to access affordable financing in the future. If the personal loan is secured and tied to your personal assets, such as your car or home, the lender can seize those assets if you default.

Small loan size: Personal loans often come in smaller loan amounts — from about $2,000 to $50,000 — than business loans. For a small startup, the size might be just right, but if you own a more established company or plan on making big purchases, you’ll want to look for loans that offer more financing.

Shorter repayment terms: Most personal loan terms range from one to seven years. If you need a longer repayment term, you’re better off looking at other small-business financing options. SBA loans tend to have the longest repayment terms, ranging from five to 25 years.

Alternatives to personal loans for business

Small-business loan: If you're an established business and want to explore other options, NerdWallet has a list of the best small-business loans. These loans are typically issued only for businesses with a year or more of history and revenue.

Business line of credit: A business line of credit is a type of small-business loan but with more flexibility. It works like a credit card, letting you borrow up to a certain limit and then paying interest only on what you borrow, so it’s ideal for business owners who aren’t sure of the scope of their financial need.

Business credit card: A business credit card offers revolving credit that’s ideal for short-term expenses and may be easier to qualify for than a small-business loan. Business credit cards also offer rewards, like cash back or travel points, and can help keep your business and personal finances separate.

Last updated on May 20, 2021

Methodology

NerdWallet's ratings for personal loans award points to lenders that offer consumer-friendly features, including soft credit checks, no fees, transparency of loan rates and terms, flexible payment options, accessible customer service, reporting of payments to credit bureaus and financial education. We also consider the number of complaints filed with agencies like the Consumer Financial Protection Bureau. This methodology applies only to lenders that cap interest rates at 36%, the maximum rate financial experts and consumer advocates agree is the acceptable limit for a loan to be affordable. NerdWallet does not receive compensation of any sort for our reviews.

To recap our selections...

NerdWallet's Personal Business Loans: What You Need to Know

Frequently asked questions

Further reading

How to Get a Personal Loan in 8 Steps

By Jackie Zimmermann & Chanell Alexander