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Personal Business Loans: What You Need to Know

NerdWalletJuly 18, 2019

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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.

Our pick for

Borrowers with good or better credit

RocketLoans

on Rocket Loans's website

on Rocket Loans's website

Min. Credit Score

640

Est. APR

5.98-29.99%

Loan Amount

$2,000-$45,000

Pros

  • Fast funding.
  • Soft credit check with application.
  • Low starting rates.

Cons

  • Origination and late fees.
  • Does not offer direct payment to creditors for debt consolidation loans.
  • No co-sign or secured loan option.
Read full review

Qualifications

  • Minimum credit score: 640, but average is higher.
  • Minimum credit history: Two years.
  • Minimum annual income: $40,000, but average is $78,000.
  • Debt-to-income ratio: Not specified.

Available Term Lengths

  • 3 to 5 years

Fees

  • Origination fee: 1% - 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.

Our picks for

Borrowers with average or better credit

Lending Club

on Lending Club's website

on Lending Club's website

Min. Credit Score

600

Est. APR

6.95-35.89%

Loan Amount

$1,000-$40,000

Pros

  • Offers a loan option with direct payment to creditors.
  • Co-sign option.
  • Offers hardship plan.

Cons

  • Charges origination and late fees.
  • No rate discount for autopayments.
Read full review

Qualifications

  • Minimum credit score of 600.
  • Minimum credit history of 3 years.
  • Debt-to-income ratio of less than 40% for single applications, 35% for joint applicants.

Available Term Lengths

  • 3 to 5 years

Fees

  • Origination fee: 1% - 6%.
  • Late fee: Greater of $15 or 5% of payment after 15-day grace period.
  • Check processing fee: $7.

Disclaimer: *All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: 595 Market St suite 200 San Francisco Ca 94105. **Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20, 2018. The time it will take to fund your loan may vary.

Prosper

on Prosper's website

on Prosper's website

Min. Credit Score

640

Est. APR

6.95-35.99%

Loan Amount

$2,000-$40,000

Pros

  • Check your rate with a soft credit check.
  • Fast funding.

Cons

  • Origination and late fees.
  • Does not offer direct payoff to creditors for debt consolidation loans.
Read full review

Qualifications

  • Minimum credit score: 640, but average is 710.
  • Minimum credit history: Two years, but average is 11.
  • Minimum annual income: None, but average is $89,000.
  • Maximum debt-to-income ratio: 50% (excluding mortgage).

Available Term Lengths

  • 3 to 5 years

Fees

  • Origination fee: 2.4% - 5%.
  • Late fee: $15 or 5% of unpaid amount (whichever is greater).
  • Insufficient funds fee: $15.

Disclaimer: For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

Our pick for

Borrowers with bad credit

Avant

on Avant's website

on Avant's website

Min. Credit Score

580

Est. APR

9.95-35.99%

Loan Amount

$2,000-$35,000

Pros

  • Low minimum credit score.
  • Refinancing option.
  • No prepayment fee.

Cons

  • No co-sign or secured loan option.
  • Does not offer direct payment to creditors for debt consolidation loans.
Read full review

Qualifications

  • Minimum credit score of 580.
  • At least $20,000 in gross annual income.

Available Term Lengths

  • 2 to 5 years

Fees

  • Administrative fee: 4.75%.
  • Late fee: $25 (most states).
  • Unsuccessful payment fee: $15 (most states).

Disclaimer: Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33. The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Avant branded credit products are issued by WebBank, member FDIC.

Summary of Personal Business Loans: What You Need to Know

LenderBest ForEst. APRMin. Credit ScoreLearn More
RocketLoans

Rocket Loans

on Rocket Loans's website

Borrowers with good or better credit

5.98-29.99%

640

on Rocket Loans's website

Lending Club

LendingClub

on Lending Club's website

Borrowers with average or better credit

6.95-35.89%

600

on Lending Club's website

Prosper

Prosper

on Prosper's website

Borrowers with average or better credit

6.95-35.99%

640

on Prosper's website

Avant

Avant

on Avant's website

Borrowers with bad credit

9.95-35.99%

580

on Avant's website

LenderBest ForEst. APRMin. Credit ScoreLearn More
RocketLoans

Rocket Loans

on Rocket Loans's website

Borrowers with good or better credit

5.98-29.99%

640

on Rocket Loans's website

Lending Club

LendingClub

on Lending Club's website

Borrowers with average or better credit

6.95-35.89%

600

on Lending Club's website

Prosper

Prosper

on Prosper's website

Borrowers with average or better credit

6.95-35.99%

640

on Prosper's website

Avant

Avant

on Avant's website

Borrowers with bad credit

9.95-35.99%

580

on Avant's website

» MORE: Compare rates on personal loans

Benefits of using a personal loan to start a business

Flexibility: You can typically use the funds you receive from a personal loan however you please, whether it's toward marketing, product development, office supplies, or another purpose. This is especially convenient if you are a sole proprietor operating out of your home; you can split the funds between personal and business use to cover any shortfalls in your day-to-day expenses.

Lower APRs possible: Depending mostly on your credit score, personal loans tend to have lower annual percentage rates than credit cards, saving you money over the lifetime of the loan. They also have fixed payments that ensures your loan is paid back within a certain time frame, avoiding the possibility of letting interest pile up on lingering revolving debt.

Ease of qualification: If you’re just getting started on your business venture, you may also have more luck qualifying for a personal loan than a business loan. When underwriting business loans, lenders look at things like 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, however, 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.

» MORE: Pre-qualify for a personal loan on NerdWallet

Drawbacks of using a personal loan to start a business

No tax credits: With a personal loan, you don’t get tax credits for your interest payments, like you might be able to with a business loan.

Personal assets could be at risk:
 If your personal loan is secured, it will be tied to your personal assets, such as your car or home. If you can’t pay back the loan, those assets may be seized.

Small loan size: Personal loans often come in smaller loan amounts 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.

Alternatives to personal loans

Community banks and credit unions: Some large, national banks offer personal loans. When searching for the best rates, also check out your community bank or credit union. Credit unions, in particular, tend to be more open to offering personal loans, especially if they recognize you as a repeat customer.

Small-business loans: If you're an established business and want to explore other options, NerdWallet has a list of small-business loans that are best for business owners. All of our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.

Last updated on July 18, 2019

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

  • Rocket Loans: Best for Borrowers with good or better credit
  • LendingClub: Best for Borrowers with average or better credit
  • Prosper: Best for Borrowers with average or better credit
  • Avant: Best for Borrowers with bad credit