Personal Business Loans: Compare Financing Options

Can you get a personal loan for a business?

A personal loan is money borrowed from a bank, credit union or online lender that can be used for any number of purposes, including 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 two to seven years.

Some lenders may not allow you to use a personal loan for business expenses, so it’s always best to check before you submit an application. This information may be available on the lender’s website or you can call their customer service department to confirm.

» MORE: How does a personal loan work?

Benefits of using a personal loan to start a business

Flexibility: As long as your lender has no rules against using a personal loan for your business, you can use the money however you want, including to purchase equipment and inventory, stock up on office supplies, kickstart your marketing efforts or cover other costs.

Low rates: Depending mostly on your credit score, personal loans can have lower annual percentage rates than other financing products — such as credit cards, if you carry a balance — 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 (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 traditional 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 seeking to fund a new business idea, 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 income. That means you can include other income sources — like earnings from a 9-to-5 job or rental properties — to supplement the income you’ll earn from your new venture.

» COMPARE: Best business loans for bad credit

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 traditional business loans. For example, the process of applying for and receiving an SBA loan can take 30 days to a couple 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 will take a hit. This may make it harder to access affordable financing in the future. If you take out a secured personal loan and tie it to an asset like your car or home, the lender can seize that asset if you default.

Small loan size: Personal loans tend to have smaller loan amounts — ranging from about $1,000 to $50,000 for most lenders — 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 two to seven years, so if you need a longer repayment term, you’re better off looking at other small-business financing alternatives. SBA loans tend to have the longest repayment terms, ranging from 10 to 25 years.

» COMPARE: Small-business financing options

When it makes sense to get a personal loan for business

You might consider a personal business loan if you haven’t been in business long enough to qualify for a traditional business loan and you’re looking to borrow less than $100,000.

A personal business loan might also be a good choice if you need money soon and can’t wait the time it takes a traditional business loan to process.

Compare APRs with other financing options to make sure a personal business loan is the least expensive choice.

How to get a personal loan for business

1. Pre-qualify with multiple lenders

To get a personal loan for business, you’ll need to apply with a bank, credit union or online lender.

Some lenders, especially online lenders, let you pre-qualify before submitting your application. That means you can see potential loan terms, including what interest rate you may qualify for, without submitting to a hard credit check, which can temporarily lower your credit score. Consider pre-qualifying with multiple lenders to find the best rate.

» Get started: Pre-qualify with multiple lenders for free on NerdWallet

2. Submit your loan application

Once you’ve decided on a lender, it’s time to complete your application. You’ll need to supply information like your personal details and contact information, your Social Security number and any supporting documents that verify employment and income.

Approval decisions can be instantaneous or take a few days, depending on the lender.

3. Get funded

Once approved, you’ll sign the loan documents and receive the funds in your account, sometimes as early as the same or next day. Once funded, make a plan for how you’ll manage your payments over the course of the loan. Missing even one payment can trigger a late fee and a hit on your credit score, which may make it harder in the future to access affordable credit for your business.

» MORE: How to get a personal loan

Alternatives to personal business loans

Small-business loan: If you're an established business and want to explore other options, a small-business loan may be a smart choice. When reviewing your application, small-business lenders prefer to see at least two years of operation, though some online lenders may only require a minimum of six months.

» COMPARE: The best small-business loans

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.

» COMPARE: The best business lines of credit

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.