Is it allowed?

It depends on the lender, but most do not offer personal loans for business use.

Check the lender's terms and conditions before you apply to see if they allow you to use their loans for business use.

When you apply for a personal loan the lender will ask you what you're planning to use the money for.

It is important to be honest, because the lender may ask you to immediately pay back the loan in full plus interest if you've used your loan for something they don't allow.

How are they different to business loans?

  • Personal loans are taken out in your name only, and what you can borrow is based on your income and credit record. You do not need to secure the amount you borrow against any assets you own.

  • Business loans are taken out in the name of a company, and are often secured against business assets, for example property. What you can borrow is based on the finances of the company, not you.

You can usually borrow more using a business loan, with some lenders offering loans of up to 5 million. The most you could borrow with a personal loan is up to 50,000.

However, business loans are usually more expensive, because the rate of interest (APR) they charge is higher than on most personal loans.

Can you get a business loan for a new business?

It can be tricky to take out a business loan to start your company because most lenders only lend to businesses that have two years of accounts.

However, you can apply for a start up business loan that is designed for new businesses.

What are the risks?

If you do find a personal loan that can be used to start your business, it's important to remember that the loan will be in your name only.

That means you will be personally responsible for making the repayments, not your business.

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

Having a loan outstanding will also make it harder for you to borrow because you will have less disposable income available to make the repayments on another loan.