Can I Use Personal Loans for My Business?

Starting, buying or running a small business of any kind is a complex undertaking, and that has never been more true than it is today. No matter what industry we are talking about, there is no end to the long list of challenges that small business owners are forced to contend with daily.

There are struggling small business owners that find themselves short on their day-to-day finances or contending with unexpected expenses all the time, and many of these situations can severely damage a business's long-term outlook. And at these difficult crossroads, many small business owners begin to explore options to finance their operations until they can right the ship.

Personal Loans vs. Business Loans

If you find yourself in a place where you need to borrow funds to bridge the gap in your business, the first step is understanding the type of loans that may be available to you.

Personal loans are similar to personal credit cards in that they make funds available to a specific person with the expectation that that person is responsible for repaying the amount borrowed. They differ from credit cards in that they are typically a lump-sum amount loaned to an individual for a specific purpose with a set monthly payment over a specified term.

These loans are made based on a person's credit history and usually appear as installment loans on that person's credit report.

Business loans are another option, typically available to companies with a proven track record of generating revenue and paying their bills. They can be used for a wide range of purposes — including working capital to smooth out cash flow during a rough stretch, not just one-off improvements like equipment or expansion.

When Can I Use a Personal Loan for Business Purposes?

Whether you can use a personal loan for business purposes depends entirely on your lender's terms — it's not simply a matter of being upfront about your intended use. Some lenders allow it, but several major ones, including Citi, SoFi, LightStream, and OneMain Financial, explicitly prohibit using personal loan funds for business purposes in their loan agreements. Using the money for business anyway, even with good intentions, can be treated as a terms violation serious enough that the lender demands full repayment plus interest immediately. Before you count on a personal loan for your business, check your specific loan agreement — or ask the lender directly — rather than assuming disclosure alone covers you.

If your lender does permit business use, a personal loan can still provide the cash you need, whether you're starting a new business from scratch or have exhausted other business-loan options. Just keep in mind you're personally on the hook for repaying it, regardless of what happens to the business.

Approval for a personal loan depends on your personal credit score rather than your business's financials. Assuming you have decent credit, the approval and funding process is often faster and simpler than applying for a business loan.

For more information on the difference between personal loans and business loans, and a more detailed explanation of when it might be best to use each, contact the experts at Jumpstart Finance today!

This article is for informational purposes only and is not financial or legal advice. Loan terms and permitted uses vary by lender — review your loan agreement before borrowing.