Should I Take Out a Loan to Support my Side Hustle?

If you’re looking to grow your small business, or even to expand it into a financially viable career, it might be worth considering a loan.

Nic Redfern Last updated on 30 November 2020.
Should I Take Out a Loan to Support my Side Hustle?

In times of economic uncertainty, when you are saving for a big purchase, and when your family is growing, the fact that a side hustle enables you to take home a little extra income every month can be extremely valuable. It might even be the difference between living comfortably and living from pay cheque to pay cheque.

If you’ve had a small business as well as a day job for a while and you are looking to scale up your small business, you might want to consider a loan. A loan may even make your side hustle viable as your day job, allowing you to be your own boss, work to your own schedule and chase your passion. Here’s what you need to know if you go self-employed.

There is a lot to consider when taking out a loan. Firstly, work out how much you need and form a plan to invest the money wisely, and then you must consider whether you can afford the finance, finally the most crucial step is choosing the best finance to suit your business.

Before any of that, you need a good grasp of how serious you are about your side hustle.

What is a side hustle anyway?

A side hustle is a term that has been popularised fairly recently. It simply refers to a small business that you run alongside your day job.

Side hustles are becoming increasingly popular in the information age, as the average worker becomes more tech savvy, more people are realising they can apply their professional skills for their own benefit from their own home.

Many side hustles will start with you freelancing your skill for hire, often working from your kitchen, bedroom or home office.

Some people who are up and running with a now-successful side hustle have started asking themselves if it’s worth taking out a loan to take things to the next level.

Do I need a loan to grow my side hustle?

Whether or not you need a loan to grow your side hustle is a very personal question. It really depends on the avenues of finance available to you and your direction with the business.

If you’re sure you need extra funds to drive your side hustle forward, start by reviewing the entire range of possible sources of cash before committing to a loan with interest.

You might have a savings pot which you can dig into. If you believe in the small business you have built from the ground up, your best option could be investing your own money into its future.

If you expect your business to be successful the risks are lower than taking out a loan, which will accrue interest. And the fact you’ve invested your own money into the business will be a motivating factor to help it succeed and flourish.

It may be possible to leverage your network of contacts to call in favours to see what you can get for free if you need new inventory or the skill set of another professional. Perhaps there are free marketing opportunities available to you, you could invest in your website by creating useful content for your community, or focus on word of mouth marketing to stretch your client list.

If, however, you’ve reached a point where you absolutely need a capital injection to take things to the next level (take a look at five reasons to consider getting a business loan), whether to purchase inventory, equipment, rent business premises or even to hire an employee or two, it’s time to consider your funding options.

Loans to unlock growth for your small business

Below are some of the common business loan structures that could be suitable to help you supercharge your side hustle.

Personal loans

Personal loans are another funding option for those looking for smaller sums of money. Most unsecured personal loans run to £30,000, whereas business loans tend to range between £500 - £500,000. However you might find that personal loans have more favourable interest rate terms, so assess your options carefully before selecting which loan is best for your business.

Because securing a business loan can be hard for new businesses – there’s a lengthy application process, some lenders require a minimum length of operation and others look for a history of strong profit – many beginning their small business journey turn to personal loans to finance their growing business.

Credit line

A credit line between a lender and customer allows you to take out money from a maximum loan amount at any time, until the agreed limit is reached. When the limit is reached and the money you’ve borrowed has been repaid, along with any interest that has accrued, the money can be borrowed again, if you have an open line of credit.

To use a credit line you’ll need to make minimum monthly repayments. The benefit of a line of credit for a small business owner is the built-in flexibility; you can use it exactly when your business needs a cash injection, otherwise you don’t need to touch it.

Perhaps you’ve been surprised by a large order, which means you need to hire an employee, or buy more equipment; or maybe you are struggling with a number of late payers – these are just a few scenarios where a line of credit can be a godsend for your business.

Invoice financing

Invoice finance is a form of business loan based on money owed to your business from customers. It allows you to borrow money against what your customers haven’t yet paid.

This type of finance can be a great way to keep your business going. It improves cash flow, allowing you to pay suppliers, pay your rent and employees if you have them. With invoice financing you don’t have to wait for customers to pay you to keep your business ticking over.

If your side hustle is already bringing in orders this could help. It’s not necessarily a solution for huge growth, but will keep your business going in a pinch.

Invoice finance is particularly useful if you have to over longer payments terms to your customers than you receive from your suppliers. Being able to receive money sooner for goods or services you have sold and had to pay for bought have not yet been paid for can really help smooth out payment timings.

When could it be a good idea to take out a loan?

Now you know some of the options available to you, it’s time to decide if taking out a loan at this time is the best decision for your business.


  • If you or your business has a strong credit rating
  • You have a solid business plan
  • You’ve got a track record of success
  • You have the time to invest in your business


  • You have a poor credit rating
  • You don’t have a business plan
  • You have no time to invest in your business

How to prepare for taking out a business loan

When looking to take out a loan there are a number of steps you can take to ensure your application is successful.

Here’s the top line on how to prepare for a business loan application:

  • Check your credit rating – a credit rating of 700 or above is considered excellent, and will help you secure most business loans. If your score is lower, work hard on improving your credit score
  • Prepare a solid business plan – you’ll need to clearly demonstrate how you intend to pay back the loan amount
  • Gather your financial records – the lender will want to closely examine them to assess your reliability

Compare loans

Whether you’ve decided that a personal loan or business loan is right for your business – check how personal loans and business loans compare if you need reminding – it’s now time to compare deals from a variety of providers.

Whether you do decide to take out a loan to finance your company’s expansion or not, we hope your business is a huge success.

About the author:

Finance Director at NerdWallet UK and business adviser to SME's Nic is spokesperson for small and growing businesses with a strong understanding of the financial needs of business Read more

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