Should You Use Personal Loans For Your Business?

Joe Schwartz

Joe Schwartz

Personal Loans Editor |

There comes a time in most businesses where more cash flow or capital may be needed. For some companies, it might be at startup, perhaps during seasonal low times, or expansion. Some business owners have family, friends, or even investors that can provide this capital or cash flow, but many need to turn to loans. When looking into loans, there are two main types; personal loans and business loans. There are certainly pros and cons for using each type of loan for business.

Perhaps one main reason for using personal loans might be the perceived ease of information and documentation needed. Many just assume that they will need to provide a substantial amount of information for a business loan. Depending on the amount required, in some cases, that might be true. Another reason may be the time required to be in business, especially when starting the business. Sometimes, time in business shouldn’t be a concern. Torro is a business loan provider that requires no minimum amount of time in business.

What Might Be Needed For A Business Loan?

Before we explore using a personal loan for business, let’s explore what is needed for a business loan. Business loan applications can include lots of paperwork, and lenders use all those documents to determine risk — whether or not they want to extend you financing, as well as the rates and terms of an approved borrower’s loan. Some factors lenders consider during the underwriting process include:

•The business owner’s personal credit score

•The business’s credit history

•Time in business

•Cash flow



•Annual revenue

Using Personal Loans For Business

Personal loans do require less documentation typically, but depending on the amount of the loan, there may be barriers. A lender may wonder why you may require $20,000 as an example, and want some collateral, unless they understand it is for business. Credit scores might be a valid reason for choosing a personal loan with lower requirements. 5k Funds is a lender that doesn’t require a minimum score, but rather looks at the whole picture. Like anything else, there could be risks involved with utilizing this road.

While personal loans can generally be used for any legitimate reason, including financing a business, you should consider the conditions they could come with. The biggest one is that your name — not your business name — is attached to the loan. Any issues could become personal liabilities.

Benefits Of Using Personal Loans For Business

The first benefit of using a personal loan for business purposes is the amount of time that it might take to complete the loan process. Some business loans can take weeks, and even months to complete and get approved, while personal loans can sometimes take a week or less to complete. Depending on how soon you need these funds for your business, this may or may not be a concern.

The time factor we already touched on can also be a major benefit. In other words, many business loans may have a “6 months in business”, or “12 months in business” requirement. With a personal loan, you are taking personal responsibility, therefore, time in business isn’t a factor.

Benefits Of Using Business Loans For Business

Depending on how much capital is needed, personal loans certainly cap out at lower levels than business loans. Personal loans typically cap out between $25k to $50k, although Credible offers personal loans up to $100k. Business loans can go into the millions depending on the type of business, along with health of the business.

Using a personal loan for your business also means you have personal liability for the loan; legally and from a financial aspect. A business loan keeps your business finances totally separate from your personal side, helping shield against any potential problems.

Businesses can also build and have credit. A benefit to using business loans to extend your business capital, is building your business credit. Much like a person’s personal credit, a business without any lending record, may show the business to be a possible risk to a lender in the future.

Loan Builder is a great choice for a business with 9+ months in business. They boast a $3,500 minimum monthly revenue target, and offer a loan between $5,000 to $50,000, with a low minimum score of just 600.

Some lenders will even take heavily into account a business merchant account and able to deduct the payback out of the credit card merchant account.


The vast majority of the time, you should seek a small business loan, not a personal loan, if you need to finance your business. Business loans are built for businesses and can offer a lot of support and flexibility that personal loans don’t offer right out of the box.

If your business requires this business loan for a specific reason, this might be another reason to also utilize business loans, since there are specific loans such as; equipment loans. If however, your business is new and just needs some capital, then perhaps the personal loan may be right for your business. Regardless of which type of loan you choose, just weigh out and understand all the pros and cons discussed above, and be sure to explore our recommendations for Personal Loans and Business Loans right here on Funding Hero.

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