Can you use a personal loan for business use?

If you’re looking for business finance you may have considered getting a personal loan. Personal loans are quick to arrange and often have a simpler application process than business loans. But do lenders allow you to use a personal loan for business? Is it a good idea and are there any pitfalls?

In this guide we explain if it’s possible to use a personal loan for business use and the pros and cons of using one. We also answer common questions like “when should I use a personal loan for business?” and “what is a personal start up loan?”

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Can you use a personal loan for business use?

It is possible to use a personal loan for business use. However, you should check to see if there are any restrictions in the terms and conditions of your personal loan.

When you apply for a personal loan, most lenders will ask how you intend to use the loan. They will also want to check if the repayments are affordable and will ask for details on your income and other financial commitments. It’s important to be upfront about how you plan to use the loan. If lenders find out you’re using a loan for a prohibited purpose then they could ask you to repay the loan straight away.

Here are some key features of a personal loan:

  • Interest rates may by fixed or variable
  • Usually no security required
  • Quick and simple application process
  • Lenders base decision on personal credit history affordability criteria
  • Personally liable for repayment

How does using a personal loan for business work?

Using a personal loan for business works just like repaying any other type of loan. You should make sure you will have enough income from your business or from other sources to make the loan repayments on time.

After your personal loan application is accepted, you’ll receive a copy of the loan’s terms and conditions from the lender. These terms and conditions will set out details of your interest rate, when repayments are due and any fees for late payment.

When should I use a personal loan for business?

New business owners often consider using a personal loan for their business. That’s because it’s sometimes difficult to get a business loan if you own a startup business. Many lenders only offer business loans to businesses with 1 year minimum trading and a certain level of revenue. Some lenders do offer business loans to newer businesses, but you might not be eligible.

Here are some common reasons for considering using a personal loan for business use:

  • You have just started a new business with little or no credit history.
  • You don’t have a detailed business plan or financial records for your business.
  • You only require a small amount of finance of up to £25,000. Personal loans have smaller lending limits than business loans because they are based on personal finances and affordability.

Alternatives to using a personal loan for business

There are several options for business owners looking for finance. Here are some of the common alternatives:

  • Crowdfunding - members of the public invest in businesses by pooling their investments. You will need to prepare marketing literature or a video to persuade people to invest.
  • Angel investors - these are wealthy individuals that invest in small businesses in exchange for owning part of the business. They will often expect to be involved in big management decisions.
  • Simple business loan - this is similar to a personal loan, but is designed for businesses.
  • Bank overdraft - most business bank accounts offer an overdraft facility. You will only owe interest on the amount outstanding at any time. It is possible for lenders to withdraw an overdraft facility with no notice so it’s not usually a good idea to use one for medium to long term borrowing.
  • Business credit card - this works like a personal credit card but is designed for businesses and may have a higher spending limit.
  • Business line of credit - this is a flexible type of business loan where you can borrow and repay cash up to a pre-agreed limit.
  • Merchant cash advances - this type of loan is designed for businesses that use a cash machine. It works by the lender advancing money in exchange for a percentage of future cash revenue.
  • Asset finance - asset finance helps you to spread the cost of buying business assets. The loan is usually secured on assets you are buying.
  • Invoice finance - this is where lenders advance cash based on the value of outstanding invoices. You repay the loan when cash is received from customers.

What are the pros and cons of using a personal loan for business?

Here are the main pros and cons of using a personal loan for business:


  • Quick to arrange - personal loans are often quicker to arrange than business loans and they have a simpler application process. You won’t have to submit a detailed business plan or financial records.
  • May not need security - personal loans don’t usually require security so you won’t be risking your business assets.
  • More likely to be accepted as a new business owner - some business loans aren’t available for new businesses and they may have minimum turnover requirements.


  • Can borrow less - lenders will usually only offer small amounts of up to £25,000 with a personal loan. The exact amount will depend on your financial circumstances, income and the use of the loan.
  • Personally liable - you will be personally liable for loan repayments.
  • Won’t build up business’s credit score - using a personal loan won’t build up your business’s credit score. This may make it difficult if you need to apply for more business finance in the future.
  • May not be eligible - some lenders won’t let you use a personal loan for business use.

How do I get a personal loan?

The application process for a personal loan is usually fairly straightforward. Here is some of the information lenders will require:

  • Personal details including photo ID
  • Information on your income
  • Information on your financial commitments, including other borrowing
  • Details of how much you want to borrow and the loan period
  • Information on how you plan to use the loan

Where can I get a personal loan?

You can apply for a personal loan from a bank, building society or broker. You may be more likely to be accepted if you apply for a loan with your current account provider. Here are some personal loan providers:

Frequently asked questions

A start up loan is a government-backed loan with a fixed interest rate of 6%. Although aimed at businesses, start up loans are actually a type of personal loan. The application process is slightly more complex than some personal loans as you’ll need to provide a business plan and cash flow forecasts.

Start up loans can be used for a variety of business uses including buying stock or funding an expansion. They include business mentoring and support which can be great for new business owners.

Interest rates vary considerably between lenders and depend on the amount you want to borrow, your personal credit score and financial circumstances. Some lenders also charge arrangement fees and monthly fees. Interest rates on personal loans vary from around 3% to 20%.

To qualify for a personal loan you will need a good credit score and a regular income. Lenders need to know that you can afford to keep up repayments.

Interest payments on loans are usually tax deductible, as long as they are used for business purposes. You should make sure you keep detailed records of the loan, any costs, and how you have used the loan. You may need to provide proof to HMRC that you have used the loan for your business, rather than for personal use.

Lenders decide loan applications on an individual basis so it may be possible to get a personal loan with a bad credit rating. However, you may be offered a loan with a higher interest rate. Lenders may also offer you a loan with restrictions that exclude using the loan for business purposes.

It may be possible to use a personal loan to start a business. Check the terms and conditions of your personal loan to see if they exclude using the loan for business purposes.

If you default on a personal loan it means you stop making payments or fall behind on payment. It will affect your credit record and may make it difficult to get future finance.

Lenders will usually send your account to their in-house collection department or to a collection agency. If you still don’t repay the loan the lender may take you to court and get a court order for repayment