Whether you are just starting to think about launching a business of your very own, or you are already helming a small but ambitious company that you think can be pushed further, then you will need capital to invest in your operations.

There are lots of ways to go about this, and securing a loan is a go-to option for plenty of entrepreneurs. So should you get a personal loan to help realize your commercial ambitions, and what kind of hoops will you need to jump through to apply successfully?

You’ll need to prove your income, e.g. with paystubs

Firstly you have to remember that a personal loan has different eligibility requirements to a full-blown business loan, and so that might make it more attractive in theory. Rather than needing to pitch your nascent company to lenders, or demonstrate that your fledgling firm is already making money, you just need to show that you have adequate income to cover the repayments on whatever personal loan you are aiming for.

This is fairly straightforward if you already have a full time job and you have the paystubs to prove it. If you do not currently receive this document from your employer, or you are self-employed, then using a paystub creator is a great way to go about this.

Checking the small print is essential

While you now know that getting a personal loan could be simpler than applying for a business loan, you also need to be aware that not all lenders will be happy with their customers using the cash they provide to them to launch or grow a commercial organization.

The terms and conditions of your loan should set you straight on this matter, and if you are prohibited from using the money for business purposes, then you should look elsewhere. Failing to disclose this and going ahead anyway could leave you in a heap of trouble, with fines to pay on top of the lent sum and any interest.

The risk is all yours

Another key distinction between business loans and personal loans is that in the case of the latter, the responsibility for repayment lies entirely at the feet of the individual. So if your business fails or there are cash flow issues, you will still be expected to keep paying off any personal loan you secured for funding purposes.

Business loans are linked to the organization itself, so liability is offloaded and the risks for the individual are lower.

Since 65% of small businesses fail within 5 years of opening their doors, you need to be comfortable with the risks you are inevitably taking when you start one, especially if a personal loan is part of your game plan.

Speed versus interest rate concerns

Another aspect of this argument to weigh up is that a major benefit of a personal loan in this context is the speed with which you will be able to apply for and get access to the funding your start-up needs to succeed, while the rates on the loan might be prohibitively high.

Business loans take much longer to wrangle, but when they are in place they can have favourable rates and better terms for borrowers over the course of the agreement.

Ultimately it is all about taking a close look at your finances, being realistic about your chances of survival once your business is established and getting to know the risks and rewards that come with using a personal loan for this purpose. Every business owner is unique and so there is no one-size-fits-all answer to this conundrum.

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