- Not available in: Colorado, Iowa, Vermont, West Virginia
Pros and cons
- Works with self-employed borrowers
- Loan terms of two years available
- Mostly positive customer reviews
- High starting APR of 9.95%
- Administrative fee of 4.75%
- Recently settled lawsuit with the FTC
Easy qualification. A personal loan relies on your credit score, income and current debts – not on your business. Online lenders are especially willing to consider small business owners who don’t meet the strict requirements set by more traditional lenders.
Less paperwork. Unlike business loans, you don’t have to submit much information to the lender when you apply. Your lender will run a credit check, generally after preapproval, and may only require you to send copies of your pay stubs, bank statements or tax returnspared to a business loan, which requires a variety of documents, it’s a much simpler process.
Lower interest rates. If you have good to excellent credit, you may be able to score a competitive APR on a personal loan that beats the rates on all but the largest business loans. This helps you save money https://worldloans.online/title-loans-ga/, which can be useful if you only need to borrow a small amount.
Same-day decisions. Most lenders will be able to review your application and come to an approval e day you apply. With a business loan, you’d likely need to wait a week or more before learning if your business qualifies.
No collateral required. When you opt for an unsecured loan, the most common personal loan option, you won’t need to provide any collateral or a down payment. This protects your personal and business assets.
Flexible payments. Personal loans offer business owners a variety of ways to make monthly payments. In addition, you rarely need to make daily or weekly payments – something that short-term business loans require. Most lenders also don’t charge a prepayment penalty, so you’re free to pay back your loan when it suits your business without fees.
Drawbacks of a personal loan
Risks personal assets. If you opt for a secured loan, you risk your personal assets for a business that may or may not pan out. It may mean lower rates, but think carefully before putting savings accounts or your home on the line for a small business.
Smaller loans. Only a few lenders offer loans larger than $50,000 – and these are very difficult to qualify for. Your credit score will need to be nearly perfect and supported by a large income. On the other hand, a business loan may give you the opportunity to borrow in the hundreds of thousands.
Relies on personal credit history. No matter which financial institution you work with, you’ll need to meet its credit score requirements. Your credit history will also be an important factor that determines how much money you’ll be able to borrow.
Mixes finances. Using a personal loan as a small business owner means mixing your personal and business accounts together. For startups, this may not be a big deal – since you lack an established credit history. But for a small business that already has its own credit score, or multiple business owners, a personal loan may put too much of your personal finances at stake.
Are personal loans for business tax-deductible?
With sufficient documentation, you can potentially deduct interest payments on a business loan from your taxes. Getting this deduction requires keeping records of how your money was spent and how it related to your small business. Only funds used for business can be deducted from your taxes.
One way to keep track of how much you spent on business is to put the funds you intend to use for these purchases into your business account. Separating your business funds from your personal accounts makes it easy to determine what percentage of the interest you pay goes toward business expenditures.