If you are an entrepreneur or run your own business, then you have probably considered taking out a loan at some point. There are lots of different reasons why you might decide to take out a loan. But, you should never make the decision to take out a loan lightly.
There are lots of different business loans available to small businesses and entrepreneurs. Yet, some people choose to take out personal loans to help their businesses. In this guide, we’ll be taking a quick look at whether, or not, you should take out a personal loan for your business.
Can you use a Personal Loan for your Business?
In one word, yes, you can use a personal loan for your business. This is something that a lot of people choose to do, whether it be to fund an existing business or to set up a new one. But, your ability to use a personal loan on your business will be inhibited by the bank/lender that you use.
This is because some lenders and banks will not lend personal loans to people who intend on using them to fund their business. To find out if there is a restriction regarding business use on a loan that you are looking at, you should check the conditions of the loan. If you were to take out a loan which has these restrictions, and use it on your business regardless, then you will likely face consequences from the bank/lender.
So, as long as the lender that you are using allows personal loans to be used for business purposes, then you can absolutely use this money to fund your business. But, as there are business loans available, you might be wondering why you would do this. So, let’s take a look.
Why might you do this?
As many banks and lenders offer loans which are specifically designed for businesses, you might be wondering why you would use a personal loan instead. The simple fact is that personal loans operate differently from business loans. With business loans there is a lot of paperwork and criteria you have to complete, but personal loans are often a lot easier to obtain.
If you only want to borrow a relatively small amount of money, for example $1,000-25,000, then you might choose a personal loan over a business loan. For most business loans, you have to detail exactly what you plan to spend the money on, and you often have to put down substantial collateral in order to get the money. But most of the time, with personal loans, you don’t need to do either of these.
Most of the time, for a personal loan, the only thing that you need is a decent credit score. Some lenders don’t even require this, if the amount that you are borrowing is small. So, you might take out a personal loan to cover business costs if you want to avoid the hassle that comes with applying for a business loan. But is this a good idea?
Should you take out a Personal Loan for your Business?
If you have considered getting a loan online, then you have probably debated applying for a personal loan to cover business costs. Personal loans are just easier to apply for, so if you do not want to borrow too much money, then you have probably considered applying for one of these instead.
As long as your bank/lender doesn’t state that the loan cannot be used for business purposes, then you absolutely can do this. But it might not always be the best choice, so let’s take a look at the pros and cons of using a personal loan for this purpose.
Pros:
- Personal loans do not require collateral, excessive amounts of paperwork, and sometimes not even a good credit score.
- If your business has a bad credit history, then this is a way to get money to support your business without worsening its credit rating.
- A lot easier if you only want to borrow a small amount of capital.
- Perfect for start-up businesses that want to avoid the time restrictions of business funding.
- You usually get your money much quicker.
Cons:
- The amount of money you can borrow is limited.
- Some lenders will require an excellent personal credit score.
- A lot of lenders do not allow you to use personal loans for your business.
Final Thoughts
If you are considering taking out a personal loan for business purposes, then this can sometimes be a good idea. If you need money quickly, or only want to borrow a small amount, then this could be the perfect way to avoid delays and excessive paperwork. But, you should always check that your lender allows personal loans to be used on businesses before you apply.
Contributor: Amber McCartney is a freelance digital specialist with a passion for financial matters. She produces articles on behalf of CreditNinja – a reputable and trustworthy online lender, offering personal loans and great financial advice.
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