You can use personal loans to finance just about anything, like a vacation, a new car, or a home improvement project. You can even use personal loans to start a new business or pay business expenses. In fact, online loans for individuals can be a faster and more convenient option than applying for a business loan through a traditional bank or credit union.
While an unsecured personal loan can provide quick access to cash for your business in good interest rateYou should always analyze the associated benefits and risks of any loan option, including the use of a personal loan for business purposes.
If you are considering getting a personal loan to finance your business, visit an online marketplace like Credible to compare the best rates and lenders available to you.
Benefits of using a personal loan for business expenses
A personal loan can be a valuable option for financing business expenses as it provides the following benefits:
- Getting a personal loan is easier than a business loan
- Funds can be transferred to your account quickly
- No deposit required
1. Getting a personal loan is easier than a business loan.
If your business is still in its infancy, it may be easier for you to get a personal loan than a business loan. In the case of a business loan, the lender will usually determine your eligibility for the loan by looking at the income from your business, the length of your stay in the business, and your personal details. credit rating… You may have difficulty getting a business loan if you are a new business owner and have not been running a company.
In contrast, personal loan underwriters will qualify you for a loan primarily based on your credit rating and income. This means that you can list other sources of income, such as other work or rental income, on your loan application.
Visit Credible to find out if you are eligible for a personal loan without affecting your credit rating.
2. Funds can be transferred to your account quickly.
Personal loans may be the best option if you need capital quickly, as lenders usually distribute personal loans within days of approval.
But with a Small Business Administration (SBA) loan – one of the most popular forms of business finance – you can wait weeks or even months before accessing your funds.
3. No deposit required.
Most business loans are secured, which means that the lender will most likely ask you to provide assets, such as business inventory, as collateral. If you are unable to make a payment, the bank may seize your bond.
However, personal loans are generally unsecured, meaning they do not require collateral. If you delay payments, your loan may suffer, but the lender may not be able to touch your assets.
Risks of using a personal loan for business expenses
Before signing up for a personal loan (or any financial product), you should consider the associated risks, such as the following:
- Personal loan interest rates are usually high
- Personal loans jeopardize your personal loan
- Interest is not deductible from the tax base
1. Interest rates on personal loans are usually high.
According to Credible, you can pay between 4.99% and 36% per annum for a personal loan depending on your credit rating and other criteria. If your credit rating is below star rating, or if the lender thinks you are income will be low, you can only apply for a high interest personal loan.
On the other hand, according to the latest data from the Federal Reserve, the average interest rates on business loans from financial institutions range from 2.58% to 7.16%.
2. Personal loans put your personal credit at risk.
When you get a personal loan for your business, you are exposing your loan to potential risks. For example, if your business goes bankrupt or you fall behind on your payments, your credit score could be severely affected, making it difficult to qualify for other types of credit, including mortgage as well as car loans…
3. Interest is not deductible from the taxable base.
Generally speaking, you cannot get a tax credit on interest payments on a personal loan like you would on a business loan.
But with proper documentation, you can deduct some or all of the interest on your personal loan.
If you can show that all of your personal loan proceeds are for legitimate business expenses, you can deduct all interest payments. However, if you mix loan proceeds with business and personal expenses, you can only deduct the amount you spent on your business, which can be difficult to document.
Should you use a personal loan to pay for your business expenses?
Using a personal loan may be wise to grow your business. This can provide a faster, more convenient way to obtain funding without requiring you to provide collateral. Of course, you must exercise due diligence and weigh the benefits and risks associated with your situation.
Before putting your signature on the dotted line, make sure you are getting the lowest rates and the best terms available by comparing offers from multiple lenders at the same time. Confidently Where Experienced Loan Officers Can Answer all your questions.
Have a financial question but don’t know who to contact? Write to the Safe Money Specialist at email@example.com and your question can be answered by Credible in our Money Expert column.