What is a Personal Loan for Business?
When you hear the term personal loan for business it’s self-explanatory. A personal loan is essentially used for commercial purposes by the borrower.
Personal loans for companies can be especially beneficial for newer enterprises that do not yet have a business track record.
If you're a business owner, in this circumstance, and are interested in getting a personal loan for your business it is something you should most definitely consider.
Personal Loans for Business Details
The maximum loan amount could be $50,000 and the loan term is 3 to 5 years. With an interest rate of 5.99% to 35% approximately it could be as fast as 1 day.
Pros of a Personal Loan for Business
- Relatively less expensive than the usual traditional loan
- No collateral required in most cases
- Best for a startup
- Can be repaid monthly
Cons of a Personal Loan for Business
- The loan is usually limited to $50,000
- Business finances can get mixed with a personal loan
- Reports to your personal credit history
“If you want to take out a personal loan for business make sure your lender lets you use your company's cash”
How do Personal Loans for Business Work?
A personal loan for business as previously said is a means for a borrower to obtain the finance they require for their firm.
They do not have enough income or time in business to qualify for a typical business loan.
A personal business loan is money obtained from the bank, internet lender or credit union with the condition that it will be utilized for business activities.
These loans are often term loans which means you pay them back in predetermined monthly payments with interest during the life of the loan (mostly in three to five years).
If you want to take out a personal loan for business make sure your lender lets you use your company's cash.
If this is the case you can utilize your loan for several commercial activities such as acquiring merchandise, making payroll or purchasing advertisements.
Benefits of Using a Personal Loan for Business
Easy to qualify for
When applying for a personal loan for business the lender will look at your personal financial history rather than your company's history.
There is no need for collateral
Furthermore, most personal loans for business are not secured. This means you won't have to put up any collateral as part of the loan deal.
While other types of company loans can only be used for specific purposes a personal loan for a business usually gives you a lot of leeway.
Drawbacks of Using a Personal Loan for Business
Even though a personal loan for business does have its advantages one must be aware of the main disadvantages:
Putting personal assets at risk
You might have to put your resources as a security deposit to apply for a personal loan for business.
Can't help to establish business credit
Since the loan isn't attached to your business a personal loan can't help you develop your company's credit score.
Combining personal and business money
When you utilize a personal loan for business or a small business loan you run the risk of combining your personal and business finances. This can also lead to more issues during tax season.
To minimize problems, we propose establishing a private business bank account and hiring an accountant.
“Insufficient collateral is the most prevalent reason why banks may refuse borrowers business loans”
When to Use a Personal Loan for Your Small Business
With these advantages and disadvantages in mind you may consider whether a personal loan is appropriate for your business needs.
Here are several instances in which a personal loan may be preferable to a specific business loan:
- If you require less than $50,000 then an alternative lender may help but these small short term business loans can be costly
- Insufficient collateral is the most prevalent reason why banks may refuse borrowers business loans
- If your company is already up and operating then you have outstanding credit and assets plus you must have a strategy for your cash so this would provide your lender with confidence in your success
Best Personal Loans for Businesses
Now that you know the benefits and drawbacks of using a personal loan for a small business. Let's look at some of the best options in the market.
Borrowers who meet the criteria at Avant can get up to $35,000 in funding with interest rates as low as 9.95 percent.
Grants loan up to $50,000 and the repayment period is three to five years. The rate of interest is 4.66% to 35.99% approximately.
The rate of interest is 5.99% and the minimum credit score is 640. The term starts from 36 months to 60 months.
How to Get a Personal Loan for Business
Personal loans for business are ultimately offered to borrowers with a good personal credit history and a consistent salary.
Lenders will look at things like your personal credit score, deficit ratio, gross annual income and net worth to see if you qualify. And if you do then what interest rate you'll get.
You might need to use a marketplace like Fiona or Credible. Or can go straight to a borrower to see if you qualify and apply for a personal loan for your business.
How to Apply for a Personal Loan for Your Business
Many people apply to their preferred bank of the business for personal loans typically having a longer application process.
Others will apply for personal loans online. You only require a few documents in your loan application.
- Your driver’s license
- Personal Tax return
- Credit Score
- Bank Account Number
- Pay Stubs/W-2s
Alternatives to Personal Loans for Business
If you think this is all too complicated for you then here are the alternatives to consider.
Business Lines of Credit
A business line of credit is similar to a credit card as it allows you to borrow money for your firm. You can withdraw when you need money and you only pay back as much as you use.
You can get a loan from Fundbox for $1,000 to $100,000 with a 12-to-24-week loan term. With a weekly interest rate of 0.5 percent to 0.9 percent of the amount borrowed.
Business Credit Card
Another popular alternative is to use a business credit card to fund your company. You'll effectively have a credit card that serves as an interest free loan if you use a business credit card with a 0% introductory APR period.
After your 0% intro APR period ends your interest rate will be determined by your credit and the market prime rate.
The Bottom Line
Choosing whether or not to use a personal loan to fund your business might be difficult. And you might be able to get more affordable company finance than you could with a traditional loan.
There are several trustworthy lenders (such as those listed above) who can assist you in obtaining a loan that is appropriate for you and your company.