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Can you use a personal loan to start a business?

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Written by Matt Fernell, Financial Content Writer

11 February 2019

Not many lenders will offer you a personal loan to start a business. There are restrictions and risks, so always check the terms and conditions before you apply.

Several people gathered round a table with coffee cups and post-it-notes.

Are you allowed to get a personal loan to start a business?

Some lenders allow you to get a personal loan to start a business, but not all of them.

The lender will ask you what you want the loan for, so It's worth checking before you apply for a personal loan. Otherwise you run the risk of being rejected.

Business loans are secured loans specifically designed for businesses.

But it can be tricky to take out a business loan to start your company because most lenders want you to show 2 years of accounts when you apply.

Start up business loans are designed for new businesses.

Personal loansBusiness loans
UnsecuredSecured
Taken out in your nameTaken out in the name of the company
Borrowing amount based on your income and credit recordBased on company finances
Usually up to £25,000Could be up to £5 million
Best APR around 3%*Best APR around 6%*

* Top results on money.co.uk as per December 2019

Discover other ways to get finance for your business

What are the risks of using a personal loan for a business?

A personal loan that you use for a business will be in your name only. That means that you will be personally responsible for making the repayments.

Ideally, the business should make enough profit to cover the repayments, but this may not happen. This means you'll have less disposable income in your personal life.

If you're unable to keep up with the payments it may damage your personal credit rating, which could affect your ability to borrow in the future.

Why your credit record matters

Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.

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