Best Personal Loans For Business Purposes
If you’ve got a billion-dollar business idea — but a hundred-dollar bank account — you might think there’s no realistic way your amazing concept could ever get off the ground. After all, you’ve got to spend money to make money, right? And if you’ve got nothing to spend, well, your brilliant idea is likely to remain just that — an idea.
Fortunately, there’s more to the story. Individuals with limited funds can transform their ideas into enterprises by using a personal loan for business purposes. But how does a personal loan for business purposes work, and what does it take to qualify for one? Find out the answers to these questions and more in this overview of personal loans for business purposes.
How Can Personal Loans Be Used to Start a Business?
Say you want to start a business as a freelance photographer. A personal loan can be used for anything from a camera to a website to online ads to promote your new venture. Or maybe you want to sell jewelry or custom clothing at a local farmers market. In this case, you could use a personal loan to pay for your booth and purchase raw materials used to create your products. Those are just a few examples; personal loans can be used for almost any financial transaction.
» See Also: Compare start up business loans
Benefits of Using a Personal Loan to Start a Business
There are several ways to go about borrowing money to start a business, but each different avenue offers its own set of strengths and weaknesses. Credits cards and business loans are popular options, but for first-time entrepreneurs, a personal loan is likely to be the best fit.
There are many advantages to using personal loans for startup business purposes. Here are a few ways they compare.
- For qualified applicants, personal loans generally have lower interest rates than credit cards.
- There are far more hoops to jump through with business loans vs personal loans.
- Personal loans diversify your individual credit mix, which can improve your credit score.
- There are far fewer restrictions regarding what you can and can’t use a personal loan for.
- Personal loans often have much more flexible payment terms and other options.
How Do Personal Loans for Business Work?
Although no two lenders are exactly alike, virtually all personal loans for businesses begin with an application. This is generally a painless process that involves filling out a form and providing personal information including your social security number. Using these details, a lender will run a credit check to evaluate your history as a borrower before ultimately approving or denying your application. If your loan is approved you can generally expect to see your funds within a few days.
While nearly all lenders impose some restrictions regarding what type of purchases a borrower can and can’t use a loan for, for the most part, lenders don’t care whether you use your funds to splurge on a cruise or start a new company. All that matters to them is that you make your payments on time. So for budding entrepreneurs, this means you can use your personal loan to cover just about any business cost.
Drawbacks of Using a Personal Loan to Start a Business
It’s not all upsides with personal loans, however. There are certain instances where this type of arrangement can hurt you financially, or where other options simply make more sense. Here’s a quick look at a few of the drawbacks to using personal loans for business.
- If you miss a payment or default on your loan, expect your credit score to drop drastically.
- Many personal loans are capped at $40,000, which is not enough for some entrepreneurs.
- Interest on personal loans isn’t tax deductible, but interest on business loans is.
Where to Find Personal Loans
Community banks and credit unions are more likely to issue personal loans than nationwide financial institutions, but, these days, online lenders are perhaps a more popular option. This is largely due to the convenience factor. Applying for an online loan doesn’t require you to go anywhere, and searching online makes it easy to compare interest rates and other loan terms.
If you’ve got decent credit and you’re looking to launch a business with the help of a personal loan, here are three lenders that might be right for you.
For Borrowers with Good Or Excellent Credit
|Available loan terms||36 to 60 months*|
|Loan amounts||up to $35,000|
|Time to fund||One to three business days after approval|
|Fees||Origination fee: Ranges from 2.4% to 5% of the initial loan amount
Late fee: $15 or 5%, whichever is greater
Prepayment fee: N/A
|Soft Credit Check?||Yes|
|Best for||Borrowers with high Income & credit utilization of less than 50% (not including mortgages), Good Credit|
Click “Check Rates” to apply to Prosper
For Borrowers with Bad Credit
If you’d like to take out a personal loan to launch a small business, but you haven’t been the most responsible borrower, you still have options. Some lenders will still work with bad credit applicants, though the terms might not be as favorable as they would otherwise.
If your credit score isn’t exactly in good shape, you might still qualify for a personal loan from these two online lenders.
*Terms are for unsecured loans and may vary for secured loans.
Don’t let your brilliant business idea fade away. Bring it into reality by applying for a personal loan today.