Can I use a personal loan for a business?

If you’re wondering if you can you use a personal loan for business, the answer is it’s unlikely. Many lenders won’t let you use personal loans for business purposes. If you do manage to get one, be careful – you’ll be personally liable for it.

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Is it a good idea to use a personal loan for business?

Whether or not it’s a good idea for you to use a personal loan for business purposes depends on various factors, such as the type of business you have and whether you’re comfortable being personally liable for the loan.

With most business loans, the repayments are tied to the business. This means you’re not personally responsible for repayments and the loan won’t affect your credit history. However personal loans are tied to the individual. So, you’re responsible for the full amount and any missed payments will affect your credit history.

Having your personal finances tied to your business can be very stressful and cause you to spiral into debt if you can’t make your repayments.

Make sure you’re fully aware of the consequences before taking out a personal loan for your business. 

Many financial institutions who offer personal loans also offer business loans. They prefer you to use business loans for business and personal loans for personal use. This means you’ll find it hard to get a personal loan with good interest rates that you can use for business.

You must be honest with your lender if they ask what you’re planning to use the loan for – if they find out you’re using it for something different, they could demand an immediate full repayment.

Having said that, there are some lenders who will allow you to use a personal loan for business purposes. If you decide to follow this route, make sure you do thorough research before making any applications.

What do I need to be eligible to apply?

In order to apply for a personal loan, you’ll need a good credit score. Lenders check your credit history during the application process to see whether they think you’ll be able to make your monthly repayments on time and in full. If you have a poor or thin credit history, you’re less likely to be approved for a loan with good interest rates.

Making any type of credit application leaves a mark on your credit history and can damage your credit score. So before you apply, you can use an eligibility checker to see whether you’ll be approved for a loan without marking your credit report.

Things to consider before applying for a personal loan for business

If you’re still wondering if you can get a personal loan to start a business, there are several pros and cons that you should consider first:


  • the application process is much faster with a personal loan. A business loan can take several weeks to be approved whereas some personal loans get approved within a few days
  • personal loans can be tax deductible. This means that you can put the personal loan you used for your business as a business expense and not pay tax on it. You’ll have to provide legal documentation to prove this - as well as information on exactly what you used the loan for
  • personal loans typically have lower interest rates than business loans, especially if your business is a start-up or doesn’t have much revenue. If you’re starting a brand-new business, you might want to get a personal loan to avoid high interest rates
  • you’re not required to provide collateral for an unsecured personal loan. Most business loans require some sort of asset secured against them, meaning you have the stress of worrying about losing assets if you fail to keep up with repayments
  • most personal loans are flexible with what you spend your money on. Whereas with a business loan you’re expected to commit to what you’re spending it on before you take it out


  • we’ve mentioned personal liability before but it’s very important you understand that if you were to use a personal loan for your business you are responsible for paying it back. Even if there are multiple partners in your business, you’re the one who is personally liable for the loan
  • personal loans typically have lower lending limits than business loans. This could be limiting if you need a larger amount of money for your business
  • business loan providers often provide support for growing your business. Personal loans don’t offer these services to help your business
  • applying for a personal loan leaves a hard search on your credit report and, if you miss repayments it can damage your credit score. A business loan isn’t tied to your credit history, so your personal credit score isn’t affected
  • it can cause issues when you fill out your tax returns and you also might get confused between the two

What other finance options are available?

Instead of using a personal loan for your business you may want to consider these other options:

1. Getting a credit card

You can use either a busines or personal credit card depending on your needs, but a business credit card would help you to avoid being personally liable.

2. Investment

Many new businesses reach out to investors who, if they like your idea, may invest a considerable amount of money in your business.

3. Crowdfunding

There are digital platforms where you can raise a large amount of money for your business from lots of people who are interested in your idea and who contribute a small amount each.

4. Government grant

Your business may be eligible for a government grant. There are different types of grants for small businesses, so it’s worth doing some research.

5. Saving up

If you don’t need a huge amount of capital to get your business started, you may want to consider saving the money yourself.

Disclaimer: All information and links are correct at the time of publishing.