Using a small business loan to fund a startup is common practice. But what about using a personal loan? That’s the topic we explore in this post. You will learn how personal loans work for businesses, the ways you can use them, and whether they are the best option for you. 

Understanding Personal Loans for Business

Personal loans are a tool you can use to cover your startup expenses. Funding can help tide you over until you start generating profits. 

You may also find them more straightforward to obtain. Qualifying for personal loans often requires nothing more than a credit check, while getting business loans involves more detailed questions about your business. 

However, personal loans are also more expensive. Most attract higher interest rates, making them less affordable for the average business owner. 

How Using Personal Loans Can Boost Your Start-up

Personal loans can improve the performance of start-ups in several ways:

• Get money required quickly to pay wages and other expenses
• Use funds for any purpose in your life, including business or personal items
• Avoid filling out complex forms needed for business loans
• Access money without having to meet stricter requirements (such as profitability criteria)

As such, personal loans are similar to any other type of financing. Funding gives your company more time to succeed and cash to invest in necessary activities to make that success possible. 

Is a Personal Loan Right for Your Business?

Whether a personal loan is right for you depends on your circumstances. Usually, you should prioritize business-specific loans. But if you can’t access those, a personal loan might be better. 

You can use personal loans to start a business, but options vary between lenders. Some will allow it, and others won’t. Therefore, check whether you are eligible with the lender first. Sometimes, they will ask to see your pay stubs or statements from your business. You may also have to submit a business plan (if you own a company and the lender thinks you might use the money for that purpose). 

During this conversation, it is worth asking the bank or credit union if you can access a business loan. These lines of credit usually offer better terms and cash you can use strategically at a lower interest rate. 

What to Consider Before Using Personal Loans for Business

Before taking out a personal loan for business, consider whether you will make a return on your investment. Be honest about your company’s viability and if you can generate enough cash flow to repay the original loan and interest. 

You should also think about the loan size you need. Personal loans are okay for small sums, but anything above $100,000 is likely too much for small businesses. In these situations, a business loan might be better. 

Do you need to secure a small business loan? If so, talk to us today!