Personal Loan for Business – What You Need to Know
Starting a business is not an easy feat. It takes a lot of work, planning, paperwork, and money. If you are planning to start your own business, one of the things that you need to plan is how you can get funding to start your business. The money can be used to obtain products, services, and equipment you need. It might seem like a business loan is the most sensible option to finance your business. But there are other options available such as personal loan for business. As with any business decision, there are pro’s and con’s for each option. Take the time to learn more about how this type of loan works in order to get your business off the ground.
Why choose personal loan for business?
If there is a business loan option, why would you choose to obtain a personal loan? This is a question that a lot of business owners ask themselves when talking about personal loan for business. One of the main reasons for this is that there is a minimum eligibility requirement for those who wish to obtain business loans. Among the requirement is that you must be in operation for at least a year or have a minimum annual revenue threshold. If you do not meet the aforementioned eligibility requirements, it can be difficult to get the funding you need.
This is why personal loan for business is a good alternative for business owners that require additional funding. When you obtain a personal loan, make sure that you check with the lender that it is for business expenses. Some lenders will categorically state that the funds you get cannot be used for business purposes. If you can find a lender that will provide this type of loan, it will be easier to qualify as you are applying as an individual and not as a business entity.
Qualifying for a personal loan for business
If you are ready to apply for a personal loan, you must check the eligibility requirements for this loan. In general, a good credit score is a requirement needed for personal loan for business. You can visit the website of the lender or contact them directly to learn about the set of qualifications. You will be asked to provide your personal and financial information, at the very least. The information will be used by the lender to evaluate your creditworthiness.
If you are worried about your credit score, especially if your score is less-than-perfect, there are steps you can take to ensure you qualify. First and foremost, you can work on improving your credit score. To do this, you must pay off your existing debts or make sure that you do not miss any debt payments.
But improving your credit score can take time, just as it took time to build up your credit score. If you are in urgent need of funding for your business, you can look for lenders who are open to giving personal loans for business to those with low credit. The only downside to this is that you might not get competitive rates or you may not be approved to use it for a business purpose.
Small Business Loans vs Personal Loan for Business
How do you know if you need a business loan or a personal loan for business? It is important to get more details about each option so you can maximise the financing you get to help your business get to the next level.
A business loan is important if you want to keep your personal and business expenses separate. This is an important step if you want to monitor your business finances as it grows (and is also helpful during tax time). Depending on the type of loan, your personal liability is limited in the event that you default on your business loan or suffer from any financial difficulties.
On the other hand, if you are responsible in paying off your business loan, it is helpful in building your business’ financial credibility. Building your business finances will provide more opportunities for the growth and expansion of your business. Among these opportunities would be higher limits on business lending or ability to trade credit with business suppliers and vendors.
The only downside to obtaining a business loan is that qualifying might be harder than other types of loan. Unless you have a high credit score, you can expect a tedious and lengthy process. If you are an entrepreneur, this process can be challenging, especially as you wait for feedback on your loan application. You might also be asked to provide a personal guarantee, depending on your situation and the assessment of the lender.
As for using personal loan for business, there are a few advantages that you can enjoy. For one, it is easier to obtain than business loans. With a personal loan, the lender will simply look at your personal credit score to assess your creditworthiness. For a business loan, they will also look into your business credit, business plan, and other necessary business financial information. This makes applying for business loans more time-consuming and tedious than if you were to apply for a personal loan. Business lenders are also known to be a lot stricter than lenders who provide personal loans.
Another advantage you can enjoy when you opt for a personal loan for your business is that this type of loan is typically unsecured. Therefore, you won’t be asked to provide collateral for the loan (which is required for most business loans). If you don’t have a valuable asset to put up as collateral, this won’t get in the way of getting funding for your business.
While there are undeniable benefits for using personal loan for business, one notable downside is that you will have a lower lending limit. The interest rate is also considerably higher. If you need a significant amount of money to get your business started, the funding you get from a personal loan might not be sufficient.
Another more important drawback to using personal loans is that you won’t be able to build credit for your business. The more you build your business credit, the more opportunities there will be available in the future to finance your business. This can prove critical when the time comes that you want to expand or grow your business. If your personal credit score takes a dip, it can spell trouble for your business.
There are pro’s and con’s associated with choosing a business loan or personal loan for your business. Make sure to research your options and weigh both sides so you can determine the best match for your unique situation.
- If you cannot find a lender that offers personal loan for business, don’t fret because there are a few other options in the market. Below are some of the most common alternatives to obtaining a business loan (aside from personal loan):
Crowdfunding – You can set up a funding project or venture in order to generate startup capital for your business. The funds are generated from a large number of people, usually done via the internet.
Grants – Applying for a government grant is another option for anyone looking to generate capital. There are many grant options available for businesses and business owners.
Credit cards – There are business credit cards available for you to use to make purchases for your business use.
Investors – You can search for investors or venture capital investors to provide funding for your business, in exchange for a share of the profits you make. There are certain risks and rewards involved with this type of business financing.
If you are looking to start a business, or have a business that you wish to grow, a personal loan is a viable option to get the financing you need. When you need money for your business, it is important that you are upfront with the lender about your intended use or purpose. There are many loan products available to choose from and you could easily find one that matches your needs and individual situation.
Whether you are a startup or have an established business, comparing loan options is critical so you can maximise profits and help take your business where you want it to be.
If you are looking for this type of loan, Money Pig can help you with that. We have an extensive panel of lenders in the UK that cater to a wide range of consumers. We can match you with the right lender that can provide financing for your business or startup. By narrowing down your options among our list of UK lenders, we can save you time and also ensure that you can get the financing you need.
Frequently Asked Questions on Personal Loan for Business
Are you starting a business or looking for extra financing to grow your existing business? You might want to consider taking out a personal loan if you have difficulty obtaining a small business loan. Below is a list of questions that business owners find themselves asking when in the process of applying for personal loan for business:
- Can I actually use personal loan for business?
- What do I need to qualify?
- Can I get a personal loan for business with bad credit?
- Are personal loans for business tax-deductible?
- What are the advantages of using personal loan for business?
- What are the disadvantages of using personal loan for business?
- What are the eligibility requirements of personal loan for business?
- How much can you borrow with personal loans for business?
- Where can you get personal loans for business?
- Is personal loan better than a business loan?
- Do I need a business plan to get a personal loan for business use?
- What are alternatives to personal loan for business?
- What is the average rate on personal loans?
- Why work with Money Pig when seeking personal loan for business?
Yes. There are plenty of lenders to choose from in the UK and they offer a variety of loan products for individual consumers and businesses. When you apply for this type of loan, it is important that you disclose the purpose of your application. Otherwise, the lender might require you to pay off your loan immediately.
If you manage to find a lender that provides personal loan for business use, study the conditions closely. You must be aware that since it is a personal loan, it is your name and not the business that is tied to the loan. If you default, it will become a personal liability (instead of a business liability). Personal loans will also be looking at your personal credit for evaluation. This is different from business loans that entail a different set of business requirements.
Again, be honest and upfront with the lender when providing your information, specifically about the purpose of the loan.
As already mentioned, personal loans will look at your personal creditworthiness when evaluating your application. For this reason, your credit score is one of the most important criteria to qualify. If you have a good credit score, it will be fairly easy to get the financing you need.
To apply, you must be able to provide your personal and financial information. There may be additional requirements but it will vary from one lender to another. The time it takes to process your application will also depend on the lender. Some can take a few hours only while others can take days.
Yes. Having a bad credit does not automatically mean that you won’t qualify for a personal loan for business. It might make your search for a lender or getting the best rate a bit more challenging, but it is not impossible.
If your credit score is below the minimum eligibility requirement set by the lender, there are steps you can take to ensure that you will get approved. The first and most obvious step is to improve your credit by reducing your debts and making on-time payments. But if you are in urgent need of a loan, you can find personal loan for people with bad credit. But if you must, you should only consider it as a last resort. This type of loan tends to have higher interest rates and will cost you more in the long run.
Yes, it is possible. Make sure that you collect enough documents to support this. If you have sufficient documents, you can use any interest payments made on the loan as a deductible for your business expenses when filing your taxes on profits. Make sure you keep records of all the money you spent that relate to your business so you can take the necessary deductions.
There are many advantages you can enjoy when you use personal loan for business. The first one is that you can have some flexibility. When you obtain a personal loan, you have freedom to use the funds as you please. This opens up opportunities on how you can utilise the fund to support your business and its growth. The funds can be used towards new product development, marketing and advertising, or procurement of new equipment. This is especially advantageous for a sole proprietor because the money you get can be used to cover for day-to-day operational expenses of your business.
Depending on your credit score, you can also take advantage of the opportunity to get a lower APR on your personal loan. In comparison to other types of loans or using credit cards, you can leverage the lower interest rate in order to enjoy huge savings over time. Just make sure that you pay back your loan on time and you never miss a single payment; otherwise, your interest could pile up.
Finally, the ease of qualification is one of the primary reasons why a lot of businesses apply for a personal loan instead. If you are just getting started with your business, it is extra challenging to qualify for a business loan. Business lenders look at the annual revenue of the business and the number of years that you have been in operation as one of the primary factors for evaluation. With a personal loan, you only need to present your income documents and credit score.
Apart from the advantages of using a personal loan to fund your business, there are also certain disadvantages. The first one is that you might not be able to borrow a significant amount of money since the lending limit for personal loans are lower. If you plan on making a big purchase for your business, then it might not be sufficient.
Another risk involved with taking out a personal loan is that your personal assets could be seized. The loan is tied to your personal assets and not the business entity.
The eligibility requirements for personal loan for business use will vary according to the lender. But the most basic requirements are that you must be over the age of 18, a UK citizen, and have good credit standing. To prove that you meet these requirements, you will be asked to provide personal and financial documents upon application.
The total amount of money you can borrow will depend on your individual qualification (since the lender will assess your personal credit score and income). You can expect to borrow anywhere from £1,000 and £25,000 based on the assessment of the lender.
You can get personal loans from a bank or credit institutions in your area. There are also many UK lenders that operate online that you can turn to if you are in need of financing for your business. Online lenders are widely available but make sure you choose the legitimate ones so you can get the money you need and to protect your personal information.
There are pro’s and con’s for each of these options. The decision on which one is better suited for your needs will be based on your personal assessment of the situation and your needs as a business. Therefore, it is highly recommended that you perform a thorough research of each option to be able to make a decision.
No. When you apply for a small business loan, you will have to present a business plan and other documents related to your business. But if you apply for a personal loan, a business plan won’t be required (even if you use it for business purposes). Then again, each lender is unique so make sure to verify this requirement upon application.
There are quite a few options available if you want to consider them, such as grants, investors, and crowd funding. You may also use your credit card when making big purchases (as long as they are not the high-interest cards).
The average interest rate for personal loans range from 10-12% for those with excellent credit score or up to 13-15% if you have a good credit score. For those with low credit scores, the interest rate can be as high as 36%.
Choosing the right loan product for financing your business’ startup or daily operational expenses can be difficult. We make this process simple for you because we provide you with an extensive network of lenders that has legitimate operations in the UK. This is how you can ensure that you work with qualified and licensed lenders that can provide the financing you need. We can also narrow down your options based on your personal and business criteria, which in turn saves you time and effort.