Can I Use a Personal Loan To Finance My Micro-Business?

Obtaining adequate funds to run a micro-business can be a challenging process. The chances of qualifying for a business loan are much higher if your firm has a history of success. So where do you tap funds when you need to start a company from scratch?

It’s only natural to consider options like a personal loan when you can’t get hands on a business loan. Using these funds as capital, you can get started on making your dream of starting a micro-business come true. And while this could be one way out of your dilemma, the question is; should you really take that path?

About personal loans for business

The business owner’s first choice should be a traditional or alternative form of business funding. But for some reasons, business financing sometimes fails to hold down the fort for entrepreneurs leaving a personal loan as their only redeemer.

Because personal loans are tailored to help borrowers meet any of their individual needs, how you spend yours is pretty well up to you. With business lending, you must have a solid plan and deep understanding of the space you’re in to get access to financing, but a personal lender only needs to be sure you’ll pay back the amount you borrow.

Whether you qualify for a personal loan relies heavily on your credit history and personal finances. A desirable credit score is enough proof you have a strong history of paying back your credit providers and the debts you owe in good time. The disadvantage here is, those with poor credit may not qualify for a personal loan.

What it takes to get a personal loan for business

A good credit score is factor number one when seeking a personal loan to fund your small firm.  In fact, you do not need to provide any information about your company when applying to obtain a personal loan. Any credit score above 580 gives you a personal loan that you can use to fund a business—but a higher score perks up your chances of approval.

In addition to reviewing your credit, potential lenders may ask for:

  • Bank statements
  • Personal identification
  • W-2 or pay stubs
  • Tax return

Wrapping Up

An entrepreneur looking for business funding should first go through their business financing options. Personal loans work best for micro-business owners who haven’t built business history or those looking for small amounts of funding (that banks are reluctant to offer, and alternative lenders provide at very high interest rates).

Author Bio: As the FAM account executive, Michael Hollis has funded millions by using merchant cash advance ISO solutions. His experience and extensive knowledge of the industry has made him finance expert at First American Merchant.