Personal loans are loans offered by banks, credit unions, and other lenders to borrowers needing quick cash. They offer a large sum of money to eligible borrowers to cover unforeseen expenses. You can use a personal loan for remodeling a home, weddings, and other expenses, but can you use personal loans for business? Some personal loan lenders allow borrowers to use their loans for business. Other lenders require borrowers to get a business loan for business purposes.
This is common among business owners because it is faster and, most times, more convenient than getting a business loan. Most business owners consider getting personal loans for their businesses when they are having problems getting small business loans. However, there are cases where personal loans can be used for business purposes. Before taking a personal loan for business, confirm with your lender if you can, and check out the benefits and drawbacks associated with it.
How Does it Work?
With a personal loan, the business owner assumes personal responsibility for repaying the loan, which is typically repaid in fixed installments over a set period. A personal loan may affect your credit because the loan may show up on your consumer credit history along with all three major credit bureaus.
Personal loans do not require collateral because they are unsecured loans. Some personal loan lenders offer secure loan options that require collateral from borrowers. However, not every lender allows borrowers to use personal loans for business. It is advisable to check with your lender first to avoid penalties in the future.
Can You Use Personal Loans for Business?
Personal loans can finance any legal personal expense, such as home improvements, debt consolidation, medical bills, and other unexpected expenses. Some lenders allow borrowers to use personal loans to pay off business expenses. However, whether you can use a personal loan for business depends on your chosen lender. Before processing your loan for business, confirm with your lender for limitations.
Benefits of Using Personal Loans for Business
Some of the benefits of using are:
Easier qualification requirements:
It is technically not easy to qualify for a business loan, especially for business owners running a startup. Limited revenue or other borrowing challenges may be an issue you are likely to face. Borrowers who have good credit and a higher income stand a better chance of qualifying for a personal loan. Borrowers who have bad credit can also qualify for personal loans for bad credit but will encounter high interest rates and fees.
Flexible funding:
Personal loans offer flexible lending options that borrowers can use to meet a wide range of expenses. However, some lenders have restrictions on what the loan can be used for.
Fast funding:
Fast funding depends on the lender. After the loan has been approved, the loan funding is done within a few days or hours.
Unsecured financing:
Unsecured personal loans are more common than secure personal loans.
Competitive interest rates:
If you have good credit, you may get lower interest rates on personal loans. It is also advisable to compare personal loan interest rates to find the one that is best for your business funding.
Disadvantages of Using Personal Loans for Business
Just as there are benefits to using personal loans for business, you need to be aware of the disadvantages that come with using your loan for business. The following are some of the disadvantages associated with using:
- Personal liabilities,
- Limitations on tax deductions.
- Limitations on Future Borrowing.
- Lesser interest rates.
You may also need to confirm with your lender the downside of using a personal loan for business.
How to Get Personal Loans for Business
Personal loans and business loans have almost the same application process. Since personal loans are easier to qualify for, they usually have lower loan requirements. Below are the steps to follow to apply for a personal loan for business.
- Review your credit score.
- Prequalify for a personal loan.
- Apply for the loan.
- Finalize the loan application.
At the end of this process, your information will be reviewed for approval, and funding will take place after that.
Alternatives to Finance a Business
Instead of getting a personal loan for business, there are other ways to get loans for your business expenses. A personal loan may be considered the only way to secure your business capital, but the below alternatives can also help you meet your business funding goals.
- Small business loans.
- Small business capital loans.
These loans can also be taken to meet your business’s financial needs.