Unlike large corporations, small and medium businesses do not have dedicated funds allocated for every aspect of their business. In certain cases, a business might require immediate funds, but waiting for approval from a traditional lender like credit unions or banks can be time-consuming.
If your business needs quick cash, one of the best options is an unsecured personal business loan. You can borrow funds for any reason whatsoever until the time you can justify it. Moreover, personal business loans don’t require any collateral and borrowers pay a fixed amount every month. The average repayment term for these loans ranges between two to five years.
Those Are My Top 3 Best Personal Business Loans
- Admin. fee: 0.99% - 5.99%
- Annual income of $80,000
- Min credit score of 640
- Failed payment fee: $15
- Day of Grace: 3 days
- Grace period fee: $25
- Administrative fee: 0% - 8%
- Min credit score of 620
- Quick funding - 1 Day
- Grace period fee: 5% Max $15
- No prepayment penalty
- No fees
- Low interest rate
- Fixed Rates
- Min credit score of 680
- Unemployment protection
- SoFi member benefits
Advantages Of A Personal Business Loan
Personal business loans serve many purposes for small businesses looking to scale their growth. Here are the notable advantages of obtaining a personal business loan:
- Quicker Approval – Personal business loans require far less paperwork than standard business loans. You don’t necessarily need to furnish any documents related to your business. Additionally, in most cases, most of the process is done online. This saves businesses time given the approval process is fast-tracked. Learn how to lift your chances of personal loan approval.
- Collateral Free – A personal loan doesn’t need you to put in collateral unless you’re applying for a title loan or have the worst possible credit score. Lenders will check your credit history and income-payment ratio before approving the application.
- Minimum Credit Score – If you apply for a traditional business loan, the lender will check your business’ credit score. If you’ve started a new business, it will be extremely difficult to get a loan. On the other hand, you can apply for a personal loan even with a low credit score. Some lenders accept credit scores as low as 580 or even lower.
- Lower Interest Rates – The annual percentage rate (APR) on a personal loan is fixed and directly dependent on the borrower’s credit score, loan type, amount, and repayment term. If you’ve got a good credit score, you’ll be eligible for the lowest available interest rates.
- Better Control – Unlike equity loans, a personal loan for business leaves you with complete control over the business. Since you’re not selling equity to raise funds, you can run the business as you want.
- Multiple Options – There are multiple types of personal loans to choose from. While some lenders might require a reason for the loan, most are not interested to know how or where you plan to spend the funds. You can even get a personal loan for bad credit if you meet other required criteria.
Disadvantages Of A Personal Business Loan
Although a personal business loan is easier to obtain than a standard small business loan, it comes with a few distinct drawbacks. Consider these disadvantages before you decide:
- Lower Amounts – Personal loans are provided for smaller amounts, ranging between $100 to $10,000 in most cases (except HELOC). If your business needs more than this limit, personal business loans won’t be the right fit.
- Zero Tax Rebate – If you have a business loan, you can claim tax credits on the interest you pay the lender. However, this isn’t possible with personal loans.
- Assets may be at Risk – If you aren’t approved for an unsecured loan, you will need to apply for a secured loan. This means you either must post collateral or get a guarantor to help take responsibility. If you default on payments, the lender has every right to claim possession of the collateral.
- Chances of Increased Rates – This depends on your credit score. If you have a poor score, you can still get a personal loan, but with inflated interest rates.
Alternatives to Personal Loans
Personal loans are just one of the many options available. The most common requirements for these loans are:
a) Good to excellent credit score.
b) Proof of income (bank statements, pay stubs)
c) Personal & business tax returns
d) Proof of identity and address
e) Collateral & co-signer(s) or guarantors
f) Business documents (AoA, MoA, franchise agreement/lease, relevant documents)
- Credit Union Loan - Many credit unions offer their members unsecured personal loans. You can often also find better rates than online lenders. If you personally know a banker, they can even help you negotiate terms as per the situation.
- Small Business Loans – Provided you have a settled business with a fair income history and credit record, a small business loan is another great alternative. However, it is not that easy to get approved as you’ll need to arrange a lot of documents, both personal and business. The terms of these loans depend on your business history, not your personal records.
- Peer-to-Peer Loans - Technically, this is a type of personal loan. The difference is that instead of submitting applications to specific lenders, your application is submitted to a pool of potential investors. The approval process takes extra time, but the lower interest rates duly compensate for the delay.
- Line of Credit – You can get a line of credit on a personal loan or a credit card, whichever best suits you. The documents required are the same as that of a personal loan, but the terms vary. For instance, you get a specific sum of approved funds and will only be charged interest on the portion of funds you use. However, some lenders might add an annual fee to the total approved amount.
Find Out If You Qualify For A Personal Business Loan
The primary requirement to get approved for a personal loan is your credit score. Though most lenders offer loans for borrowers with bad credit, the lower your credit score, the higher the interest rate you’ll be paying. Most lenders clearly state the eligibility criteria on their websites, but if you have any doubts, it is ideal to speak with a loan representative from the company.
Here are some the major qualification parameters:
- Check your credit score - You can get a credit report from a credit bureau for a nominal cost or for free once annually. Try clearing off some debts before you apply for a loan. The cleaner your debt history is, the easier it is to get an approval.
- Gather all the documents - For most personal loans, you will need to produce proof of identity and proof of address. In addition, the lender will also need copies of income proof (bank statements, tax receipts, pay stubs) for a specific period, credit history, and other documents as necessary.
- Calculate the expenses – Get a rough calculation on how much the new loan will add to your existing monthly payments. You can use online calculators to figure out and accordingly apply.
It is important that you try and get pre-approved to steer clear of all hassles. Furthermore, if you are pre-approved for a personal loan, you have a better chance of negotiating lower interest rates and suitable repayment terms with the lender.
Personal business loans are the right alternative if you need a smaller amount for the business. You won’t need to place any collateral and the monthly payments are fixed. Furthermore, the required documentation and eligibility criteria are more flexible.
As always, we suggest comparing multiple quotes and considering your debt-to-income ratio before choosing a personal business loan.