It takes money to make money. And if you need funds to make your business plan a reality, a personal loan can close the gap. Start with Benzinga’s review of the best personal loans for business.
Best Personal Loans for Business
Because personal loans are exactly as they sound — a chunk of cash lent on credit to use for whatever you like — the money can serve many purposes. This includes quick cash to get your business off the ground, buy needed supplies or spruce up your work-from-home space.
Read on to learn more about the best lenders and loan comparison services for personal loans.
Types of Personal Loans for Business
There are many things that define a personal loan. What you’re offered and what you choose depends on your unique situation. A loan comparison service like Credible is a way you can compare all your options.
Most personal loans are general use, but some may require you to disclose your intended use or offer different loan conditions for different uses. The conditions of a loan also depend on the circumstances. Your unique financial snapshot (including your credit) and the way a lender analyzes it determines if you are offered a secured, unsecured, fixed or variable rate loan.
If a lender asks that you put up collateral to back a loan, you’re being offered a secured loan. These types of loans pose less risk to the lender, as an asset like your house or bank account balance may be used to secure the loan.
Something concerning on your credit report may cause a lender to ask you for collateral. This means while there is less risk to the lender, you’re taking on more personal risk. Be sure you are able to meet the terms of the loan so you don’t risk your assets or your credit.
An unsecured personal loan doesn’t require collateral to back the loan. While you may get a higher loan approval amount with a secured loan, these are perfect if you don’t have assets to put up as collateral.
BadCreditLoans.com offers general personal and business loans up to $10,000. This service connects you with lenders providing unsecured loans who are willing to work with bruised credit.
These loans can also be used to build credit if you’re a young entrepreneur just starting out. Pay back the small loans within the terms to establish creditworthiness to lenders. This will position you as a business owner who lenders will trust with the necessary capital in the future.
Fixed-Rate Loans vs Variable-Rate Loans
Although many lenders offer both options, fixed-rate loans are preferable to most — you know exactly what you’re getting into financially. A fixed rate allows you to calculate how much interest you’ll pay overall. But these rates may be higher or come with larger monthly payment plans, which can be troublesome if all your money is tied up in your business while you’re working toward a profit.
The higher rates and larger monthly payments reduce a lender’s risk while ensuring the loan is profitable for them. The only other downside is that your loan rate doesn’t go down if interest rates fall, but this is usually outweighed by the rest of the advantages.
A variable rate loan may offer some perks to consider. Although the interest rate may leave you owing more than the loan itself was worth, you might have to use a variable rate loan if you can’t get approved for a fixed-rate loan or need low monthly payments and a lower rate to save on cash now.
If you think that you’ll see a worthwhile return from using a variable-rate personal loan to invest in your business, this can still be a savvy financial move.
Personal Loan Requirements and Criteria
Although these criteria vary by lender, most personal loans approval decisions depend on the following:
- Your FICO credit score
- Debt-to-income ratio
- Delinquencies or negative remarks on your credit report
- Credit utilization (your credit balance vs. your credit limit)
- Open accounts with a positive standing (payments being made on time and so forth)
Other considerations may be made depending on your unique situation.
Personal Loan Considerations
Although a personal loan may have looser usage restrictions than other types of loans, it’s still a serious financial obligation. Be sure you are clear on your loan terms before you sign for a loan. Following them to the letter is important to keep your credit history spot-free, an important quality if you’ll need further credit in the future.
Look out for sketchy-looking lenders or loans, especially online. It’s best practice to go through trusted lenders. If it seems too good to be true, it probably is. Loan comparison services like Even work with vetted lenders to make your search less risky.
You can also use the Lender Match service provided by the Small Business Administration (SBA). Its loan match service will connect you with vetted lenders who offer low rates and meet certain SBA guidelines meant to protect both borrowers and lenders.
Personal Loans vs. Credit Cards
While many businesses use business credit cards for day-to-day spending, a personal loan can be more beneficial in certain situations.
Each a line of credit, credit cards have revolving balances while a personal loan closes once it’s paid off. A personal loan is great for a large, 1-time purchase that you can pay off in installments like renovations or pricey commercial equipment. You can streamline your business-related debt payments by consolidating them with a low-rate personal loan through a service like Payoff.
Credit cards usually have variable rates while personal loans have fixed rates. Personal loans may have higher credit limits than credit cards. Credit cards can cover smaller or recurring purchases that you can pay off at your discretion.
Fund Your Business Now
Financing your business with a personal loan may be the right funding solution for you. Check out your options using a loan comparison service like Credible or connect with 1 of our recommended lenders to find the right personal loan for business today.