Personal Business Loans: What You Need to Know

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Getting a Personal Business Loan

Personal business loans give entrepreneurs, business owners and people looking to take a side hustle to the next level a way to access funding fast.

Personal loans are popular thanks to the diversity in ways they can be used. One way that many people choose to take advantage of this borrowing tool is to fund their existing small business or new idea, because personal business loans provide access to startup and capital funds. The best personal loans for small businesses have competitive interest rates, extended repayment periods and are available to entrepreneurs and business owners across the full spectrum of credit profiles.

 

4 best personal business loans of 2020

  • Lending Club – Best P2P lender
  • Rocket Loans –Best for good credit
  • Avant – Best for bad credit
  • Prosper – Best for average credit

Lending Club – Best P2P lender

Lending Club is a P2P lender, which means that your loans are coming from an individual investor instead of a bank. What this means is that your chances of approval might be way higher because instead of one lender, there are thousands that could be interested in backing your business loan.

Personal business loans are available with rates dependent on your creditworthiness. There are no application fees, but there is a 3.49% – 7.99% origination fee that’s only charged if you secure a loan through Lending Club. Additionally, there are no prepayment penalties, so you only get charged for the time you have the money outstanding. For business owners, this can be a big perk, as you may see success and be able to pay things off early and save significantly.

Rocket Loans – Best for good credit

If you’re looking for fast business funding, Rocket Loans is able to get some business owners and startups access to funds the same day they apply. These unsecured personal business loans are made available to the owner and not the business, which means your business does not have to be put up as collateral. Loans through Rocket Loans come with an origination fee of 1% – 6%.

Usage wise, Rocket Loans allows borrowers to use the funds for just about anything that relates to the daily operations or success of their business. If you don’t want a lender looking over your shoulder trying to manage your spending, this could be a good fit. Compared to the industry, Rocket Loan’s rates may be lower, especially for borrowers with good or better credit.

Avant – Best for bad credit

Another fast option for personal business loans is Avant. Borrowers can get access to their funds often by the next business day after accepting loan terms. Rates will vary based on where you live. Much like Rocket Loans, Avant does not micromanage the use of your funds, so you will be free to spend on your business or startup as you please.

Avant’s mission is to “lower the costs and barriers of borrowing for everyday people.” If you’re worried about approval, you may have some success through Avant. While the exact criteria required to secure a loan through the company is not publicly available, the company’s willingness to educate, include all and extend a helping hand demonstrates it may be a better fit for people with bad credit.

Prosper – Best for average credit

Getting a personal business loan through Prosper is a simple and straightforward process. Funds can be directly deposited for approved borrowers in as little as three days. While this is not as fast as some of the other bank loans for business options, it’s still quite quick.

As Prosper loans look at your personal creditworthiness and not your business, it may be an ideal fit for struggling businesses or for individuals just starting out. Many other business loan options require a proven track record, which may be a deal-breaker if you’re a startup or still pushing through the growth phase. Overall, Prosper offers small business loans at a competitive rate without the need for collateral.

Compare the 4 best personal business loans of 2020

ProviderLoan AmountAPRTermsEligibility Criteria
Lending Club$5,000-500,00010.68-35.89%0.5 to 5 yearsBased on personal creditworthiness
Rocket Loans$2,000-45,0007.16-29.99%3 or 5 yearsBased on personal creditworthiness
Avant$2,000-35,0009.95-35.99%2 to 5 yearsBased on personal creditworthiness
Prosper$2,000-40,0007.95-35.99%3 or 5 yearsBased on personal creditworthiness

What is a personal business loan?

A personal business loan is a form of borrowing that can deliver fast funding to individuals to use for their existing business, startup, or to take a side hustle to the next level. Money is provided upfront as a lump sum and is repaid in fixed installments over an extended period of time (generally a few years). As for the cost of borrowing, borrowers will pay interest on the borrowed money, as well as some administrative fees in some cases. It’s really nothing more than a regular personal loan that allows you to use the cash for your business.

Personal business loan vs. small business loan

Personal loans are typically a faster and more convenient way to get money for your business compared to your typical small business loan. Small business loans can require a few more steps, like presenting a business plan or report to the bank, that personal loans will not require. Borrowers also enjoy the flexibility that personal loans grant them because they’re free to spend the cash wherever they want (while being liable to pay it back, of course) while starting or revitalizing their business.

Other alternatives to personal business loans

Credit cards

Credit cards offer a revolving line of credit that can be used and reused to fund your business or startup needs. You may also be able to get some deals that offer interest-free use for a fixed period of time as an introductory offer. If you only need short-term funding, this might be a good option to consider.

Investors

You can always get friends, family or institutional investors to put up money to help you with your business. While this lowers the risk for you, it also lowers your ownership percentage. This means when you make money, you will make less because you’ll have to share with the investors. However, many people feel the trade-off of risk versus reward is worth it. Additionally, when you bring on investors, you may have more paperwork to fill out and people to answer to for your future decisions.

“Bootstrapping”

This is a popular entrepreneurial term that means doing things the least expensive way possible. It’s the process of finding ways to make things work during the startup phase for as little of a financial investment as possible. Often, this includes putting in sweat equity — doing a lot of the work yourself.

Grants

Some states, private institutions and even the federal government may have grant options available for you to use when funding your business. Often, grants are used to help drive the economy by supporting local businesses and do not have to be repaid. If you can get a grant, it can be used in conjunction with the other borrowing options if you need access to a larger amount of money.

Crowdfunding

Crowdfunding websites allow business startups and expanding businesses to pull funding from the masses. Instead of getting a lot of money from one source, you get a little money from a lot of sources. When you crowdfund, you give people something in return for their investment, but not a piece of the company. For example, if you are starting a T-shirt company, you might give out increasingly larger bundles of product for each level of investment. It can also be a unique way to sell things before you make them.