Top Personal Loans For Business Compared
Whether starting a business or taking an existing business to the next level, there comes a time when every business owner considers applying for a business loan. If you’re a small business owner, however, you know difficult it can be to qualify — perhaps you’ve even taken steps to apply for a loan only to have lenders turn you down. If a traditional business loan just isn’t in the cards, why not consider a personal loan for business?
You’ve heard of personal loans and maybe you’ve even taken one before to cover your personal expenses. But you can also leverage this type of financing to fund your business, from startup costs to expansions. Before pulling up a loan application on your laptop, read on to learn more about using personal loans for your business, how to qualify and apply, and our selection of top lenders. In this article, we’ll compare eight of the leading online personal loan outfits. On the “traditional” side, we have SoFi, RocketLoans, LendingPoint, Discover Personal Loans, and Avant. On the P2P side, we have Lending Club, Prosper, and Upstart.
Table of Contents
- What Are Personal Loans For Business?
- When Should I Use A Personal Loan For My Business?
- What You Need To Qualify For A Personal Loan
- Personal Loan Terms & Fees
- What To Expect From The Application Process
- Which Lender Is Right For My Business?
- Don’t Qualify? What To Do If You Can’t Get A Personal Loan For Business
- Final Thoughts
What Are Personal Loans For Business?
You’re probably already familiar with personal loans. The process is pretty straightforward, after all. You apply with a lender for a lump sum of money. If you’re approved, you pay back the loan — plus fees and interest — via scheduled installments.
While most personal loans are used for expenses like catching up on bills, covering an emergency car repair, or consolidating personal debt, personal loans can also be used to finance your business.
From startup costs and working capital needs to hiring and training employees, a personal loan can help you get the financial boost you need when a traditional business loan isn’t your best option.
When Should I Use A Personal Loan For My Business?
A personal loan for business can be used for any business expense. Funds can be used to purchase inventory or supplies, cover operating expenses, or fund your expansion. If your business is new or hasn’t even opened its doors, a personal loan can be used to fund your startup costs.
With so many business loan options on the market, though, why should you choose a personal loan? The reason is simple: qualifying for a business loan is difficult for many business owners. A lender evaluates your personal and business credit history. Your time in business, annual revenue, and other factors are also considered for approval. For some businesses, this can pose a challenge.
For example, your business is thriving, but you’ve only been in operations for 18 months. Most business lenders require a time in business of at least 2 years. Maybe your situation is different. Maybe you’ve not had a chance to establish business credit, and lenders are turning you down.
These problems can be resolved with a personal loan for business. Your personal credit score, income, debt-to-income ratio (DTI), and other personal factors will be used to determine your approval and maximum borrowing amount. Your time in business and business revenues will not be a consideration for loan approval.
Of course, you could always apply for a business loan that has very flexible requirements. However, you may end up paying higher interest rates and fees, resulting in a more expensive loan.
If you have a high credit score, a solid credit history, and verifiable income, it may be a smart financial move to apply for a personal loan for business. By going this route, you can receive a higher loan amount, lower interest rates, and more financing options than with business loans.
What You Need To Qualify For A Personal Loan
|Proof Of US Citizenship||18+ Years Old||Required Credit Score||Required Annual Income|
|Yes||Yes||600 - 680||$20K|
|Yes||Yes||600 - 700||No requirement, but preferably over $40K|
Requirements (such as credit score) needed to qualify for a personal loan vary somewhat by lender. However, for most personal loans, there are a few general requirements. The borrower must be a citizen or permanent resident of the United States. All borrowers must be at least 18 years old.
To qualify for most personal loans, a credit score of at least 600 is required. While there are some lenders with lower credit requirements, these options typically have much higher rates and fees.
In addition to your credit score, lenders will also review your personal credit history. Some lenders will reject your loan application if you have recent bankruptcies, collections, or other negative items on your credit report.
An additional requirement is verifiable income. Lenders will also make sure that you can afford the loan by calculating your DTI ratio. This ratio shows the relationship between your debt and your income. Lenders use this to gauge how much of a risk you are and whether you’re able to afford a new loan payment. A good DTI is 36% or less, although some lenders will approve loans for borrowers with a higher DTI.
Personal Loan Terms & Fees
|Borrowing Amount||Term Length||Origination Fee||APR|
|$1K – $50K||3 or 5 years||2.8% - 6%||6.25% – 29.99% (fixed)|
|$3.5K - $20K||2 - 4 years||0% - 5%||15.49% – 34.99% (fixed)|
|$2K - $40K||3 or 5 years||1% - 5%||5.99% – 36% (fixed)|
|$1K - $35K||2 - 5 years||0.95% - 4.75%||9.95% – 36% (fixed)|
|$2.5K - $35K||3 - 7 years||None||6.99% – 24.99% (fixed)|
|$1K - $40K||3 or 5 years||0% - 5%||5.99% – 35.96% (fixed)||Check Rate|
|$2K - $35K||3 or 5 years||1% - 6%||5.983% – 28.99% (fixed)|
|$5K - $100K||3, 5, or 7 years||None||5.70% – 14.24% (fixed); 4.77% – 10.87% (variable)|
Like borrower requirements, the terms and fees of personal loans vary by lender. Most personal loans have repayment terms of 2 years, but longer terms are available from select lenders. Interest rates are based on your creditworthiness. The lowest interest rates and best terms are typically reserved for borrowers with personal credit scores at least in the high 600s.
Lenders may also charge various fees that are added into the cost of the loan. Though these fees vary, some common fees associated with personal loans include:
- Origination Fees
- Application Fees
- Prepayment Fees
- Credit Insurance Fees
What To Expect From The Application Process
The internet has made applying for a personal loan easier than ever. To get started, visit the website of your preferred lender. You’ll be required to input some basic information, such as your name, Social Security Number, and annual income information. With some lenders, this is enough to receive a pre-approved offer, which we’ll discuss in more detail in the next section.
As you move through the application process, additional information and documentation are needed. This includes:
- Bank Statements
- Income Tax Returns
- Credit Report & Score
- Copy Of Driver’s License
- Proof Of Income
- Proof Of Address
For some lenders, this information is all you need for loan approval. Others may require further information or documentation during the underwriting process. Make sure you include accurate contact information on your application and make yourself available to the lender as needed.
Some lenders are able to approve your loan instantly and transfer funds to your account as soon as the next business day. Other lenders need additional time to review your information. From application to funding, here’s how long you should expect the process to take.
- SoFi: About 10 days
- Prosper: 3 – 5 business days
- RocketLoans: 1 – 3 business days
- LendingPoint: 1 – 2 business days
- Avant: 1 – 2 business days
- Discover: 1 – 2 business days
- Lending Club: About a week
- Upstart: Generally less than a week
Which Lender Is Right For My Business?
Many lenders offer prequalification tools that you can use to get pre-approved and find out your rates and terms. This is a great way to shop around for the most affordable loan.
You also need to do your research to make sure you only apply for loans that you’re qualified to receive. For example, if a lender requires a credit score of 700 but your score is 660, you’ll need to seek other options. We make finding a loan easy by doing the research for you. Check out our full reviews of lenders to find the best match for your financial situation.
Also, take into consideration the amount of money you need. If a personal lender offers up to $20,000 but you need more money, mark that lender off your list and look for options that best fit your financial needs.
Don’t Qualify? What To Do If You Can’t Get A Personal Loan For Business
You shopped around and maybe you even applied for a loan, but you don’t qualify. Does this mean that you have to explore other options? Not necessarily.
One option to qualify for a personal loan is to get a co-signer. A co-signer is someone with a high credit score that is qualified to receive the loan. A co-signer agrees to be held responsible for the loan, which lessens the risk for the lender. If you default on the loan, the co-signer will also be liable for the debt, so as with any other financing, make sure you pay your loan as agreed.
If you don’t have a co-signer, you may be able to qualify for a personal loan with collateral. With a secured personal loan, a lender gives you a lump sum of money backed by an asset (anything of value, such as a vehicle, real estate, or equipment). If you default on the loan, the lender has the right to seize the asset.
If your credit score is what’s holding you back from a personal loan, take the time to rebuild your credit. Receive your free credit score online, review your credit report for errors, and take a few steps to boost your score. Improving your credit will not only help you qualify for more financing options, but you’ll also receive lower rates and better terms.
If you need financing immediately and don’t have time to work on your credit, you may qualify for a personal or business credit card. There are multiple options if you have good credit, but there are also unsecured cards available for borrowers with fair credit scores. If your credit is bad, you may qualify for a secured card. A secured card is backed with a cash deposit. As you use your card and pay it off on time, you can qualify for a higher credit limit, unsecured cards, and other financing options.
If getting a business loan has been a challenge, a personal loan used for business expenses can be a smart solution. As with any type of loan, make sure to shop your options and understand the total cost of your loan. Apply for a loan you can afford, make your loan payment as agreed, and be financially responsible when launching, building, or expanding your business.