Small business owners are no strangers to financial headaches. From securing startup financing to covering temporary cash-flow problems, small business owners often have to work quickly to find a solution that will keep their business humming.
Taking out a personal loan is one solution that is often overlooked. Bootstrapping your business is always best, but sometimes excess capital is needed.
While a personal loan may not be right for every entrepreneur, there’s a lot to recommend it as a possible way to smooth over financial rough patches. To start, a personal loan’s rates rely on the credit of the small business owner, rather than the business itself. This is a major benefit if your business does not have a long history to draw on. Also, a personal loan offers flexibility in how the money is used, so you can take care of payroll and an equipment purchase with one personal loan, for example.
However, since personal loans are unsecured–just like credit card debt–borrowers who struggle with self-discipline and those without a great credit history may find that a personal loan will actually cost them in the long run. You may be able to improve your credit score a bit. Check out Experian Boost to see how.
This is why potential borrowers should do their homework to understand the personal loan options available to them based on their own credit score. Each of the following online lenders has different requirements and alternatives for borrowers. They are listed in order of credit score requirements.
Read on to see which one will work best for you:
The Best Personal Loan Sites for Small Business Owners (Based on Your Credit Score)
This is a peer-to-peer lending platform that connects borrowers with accredited investors who fund their loans. What makes Upstart different from other peer-to-peer platforms is the fact that it can use more than just your credit history to determine your creditworthiness. More info…show
- Loan Minimum/Maximum: $1,000 to $50,000
- Loan Repayment Terms: 36 months or 60 months
- Rates: 4.68% – 35.99% APR, fixed.
- Fees: Origination fee between 0% and 8%, which is deducted from the loan proceeds before it is delivered to the borrower. There are no pre-payment fees or check-processing fees. Late fees are either 5% of payment amount or $15, whichever is greater.
- Minimum Credit Requirements: Experian credit score of 620 or better, unless you have not built up enough credit history to generate a credit score.
Learn more about Lending Club.
Lending Club is currently the largest peer-to-peer lending network, responsible for over $42 billion of loans as of 2018. It is available to borrowers in every state except Iowa. More info…show
- Loan Minimum/Maximum: $1,000 to $40,000
- Loan Repayment Terms: 36 or 60 months
- Rates: Fixed rates from 6.95% to 35.89%
- Fees: Origination fee ranges from 1% to 6%. If you choose to pay via check, there is a check-processing fee. There is no prepayment penalty.
- Minimum Credit Requirements: Experian credit score of 600 or better, strict debt-to-income requirements.
If you need money in a hurry, a FreedomPlus loan might be your answer. This lender offers same day online loan approvals and loan funding within 48 hours–within some restrictions. Borrowers can access up to $40,000 from FreedomPlus with fixed rates ranging from 5.99% APR to 29.99% APR. More info…show
- Loan Minimum/Maximum: $7,500 to $40,000 (with a few restrictions by state)
- Loan Repayment Terms: 2-5 years
- Rates: Fixed rates range from 5.99% to 29.99%
- Fees: The origination fee ranges from 0% to 5%. There is no prepayment fee. Other fees, such as check processing fees or late fees are not spelled out on the website. It is a good idea for borrowers to fully read all fine print on any loan offers to know if there are other potential fees.
- Minimum Credit Requirements: A FICO score of 640.
Like Lending Club, Prosper is a peer-to-peer lending platform that offers better loan rates than those available through a traditional bank. Prosper is available in every state except Iowa and West Virginia. More info…show
- Loan Minimum/Maximum: $2,000 to $40,000
- Loan Repayment Terms: 36 or 60 months
- Rates: Fixed rates from 7.95% to 35.99% APR
- Fees: You pay an origination fee between 2.41% and 5%. Borrowers who pay via mail or phone may have to pay a $15 processing fee each time. There is no prepayment penalty.
- Minimum Credit Requirements: Experian credit score of 640 or better. Prosper uses a proprietary credit rating system known as Prosper Rating. Borrowers must also meet the following criteria: debt‐to‐income ratio below 50%, stated income greater than $0, no bankruptcies filed within the last 12 months, fewer than five credit bureau inquiries within the last six months, and a minimum of three open trades reported on their credit report.
- Disclosure:For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.9. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 2.41%-5%. Personal loan APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for the most creditworthy borrowers.Eligibility for personal loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank, Member FDIC.
Need cash to start or grow your business? This is a great list of personal loan sites that might be just what you’re looking for!Click to tweet
This lender is all about helping people get out of debt and achieve financial freedom. Their loan model assumes that borrowers are taking on personal loans in order to pay off credit card debt.
You can borrow between $5,000 and $35,000 from Happy Money for a fixed rate between 5.99% and 24.99% and terms between 24 and 60 months. Happy Money partners with four different banks, known as their “lending partners,” to originate loans. Happy Money is neither a bank nor a peer-to-peer lender. More info…show
- Loan Minimum/Maximum: $5,000 to $35,000
- Loan Repayment Terms: 2, 3, 4, or 5 years
- Rates: Fixed rates between 5.99% and 24.99% APR
- Fees: The origination fee ranges between 0% and 5%. There are no other fees whatsoever.
Get started at HappyMoney.com.
SoFi is a non-traditional lender that imposes no origination fees, closing costs, or prepayment penalties–and surprisingly, no late fees. Their approach focuses on only lending to financially responsible borrowers, and they analyze “forward-looking” factors to determine each applicant’s future potential and ability to pay. More info…show
- Loan Minimum/Maximum: $5,000 to $100,000
- Loan Repayment Terms: 5, 7, 10, 15, and 20 years
- Rates: With autopay, fixed rates range from 5.99% to 18.82%.
- Fees: There are no application or origination fees, and there is no prepayment penalty or late fee.
Read our full Sofi review.
For a bank that started in 1690 (really!), Barclays offers some surprisingly modern perks with their personal loan program. It starts with their friendly user interface, that allows you to check your rate before submitting your application, which means you can figure out if the loan is right for you without affecting your credit score. Rates range from 5.74% to 18.99%, and the rate you are quoted is guaranteed for the life of the loan–unlike the tempting-but-temporary introductory APRs that go up after a certain period of time. More info…show
- Loan Minimum/Maximum: $5,000 to $35,000
- Loan Repayment Terms: 36, 48, or 60 months
- Rates: Fixed rates ranging from 4.99% to 20.99%.
- Fees: There are no application or origination fees, no prepayment penalty, and no late fees.
This site is an online loan marketplace, where borrowers can fill out a single form in order to receive multiple customized offers from lenders on the LendingTree network. The borrower pays no fees whatsoever in order to use LendingTree. Depending on which lender you choose, however, you may have to pay an application fee, processing fee, and/or closing costs. More info…show
Tips to Get a Personal Loan
It has become much more difficult for us to be approved for various loans and banks are now usually more competitive.
They have taken the stance of the ones in power and thus choose very carefully who they loan to, much like employers when they hire employees.
I’ve found that there are many similarities between dealing with banks and dealing with an employer or prospective employer – from interview tactics to acceptance of terms. Hopefully, if you are in a situation that warrants a personal loan, these tips can help.
1. First Impressions Do Matter
When you go in for a job interview, you want to look your best and try to present yourself as best as you can both on paper and off. With banks and personal loans, you want to do the same thing, especially since the relationship can be longer than one with an employer.
The representative at the bank will be looking for any reason that might suggest you’re a bad candidate for the loan; they’ll look over your credit score history, any existing debt you have, and your income.
Basically they want to know whether or not you will be able to repay the loan under their terms. If there is any shadow of a doubt, you can be sure that they will pass on giving you a loan.
For the loan that I received, I was actually turned down with my first application even though I was asking for half as much money as my second application (which was later approved). The bank told me that starting a business was risky and that they, therefore, wouldn’t loan to me.
When I went back in with the new intent of consolidating debt as well as getting a little extra money for starting my business, they were all for the transaction because I had my new car as collateral.
You can’t predict exactly how the bank will act when going through the lending process, but you can control how prepared you are.
Be ready to provide information on any collateral you have and proof of income. Show the lender that you are on the ball and know what you’re doing – it’ll increase your chances of approval.
2. Your Answers Count in an Interview
In a job interview, you are usually asked a series of questions related to the work you will be doing, your past work experience, and oftentimes even some open-ended questions that have more to do with who you are and what your personality is like.
A personal loan interview is no different. Your answers to questions like, “Why are you applying for this loan” and “How quickly do you intend to pay the loan back” matter.
You obviously need to be honest but you also need to consider what the interviewer will think about your reply, and thus formulate it in a way that sends the right message.
Be cordial and answer the questions as directly as you can without giving away too much unnecessary information. The interviewer will be trying hard to “read between the lines” and find out what you might really mean, so do the best you can to give them exactly what they want and nothing more.
3. Don’t Feel Pressured by a Low-Ball Offer
At the end of a job interview, there usually comes a time in the conversation when you are given the initial terms of employment.
At this point, you may even be offered a position – including a salary figure and key benefits to make the job sound more appealing. With jobs and personal loans alike, all of the terms are negotiable.
If they don’t sound right, don’t take them!
In the case of my personal loan, the interest rate came back at 10%.
For me, this was lower than the interest rate on the bulk of my debt so I took the deal, but had it been any closer to my car loan’s higher interest rate of 13% I would have said, “no thanks.”
Keep in mind that you are a customer of the bank. You are their source of revenue, but more importantly, you are the foundation on which they operate.
You have a lot more control in this situation than you might think, and if you don’t like everything about what they offer, don’t be afraid to walk away.
You owe them nothing and taking a bad deal will only hurt your future. On the other hand, passing on the loan won’t hurt the banks one bit.
The economy isn’t what it used to be, and lenders, like employers, are a lot more strict about who they will get involved with.
If the time comes when you need a personal loan, don’t leave any room for errors whenever you can control it. Come prepared to look your best, and the bank will be happy to lend you the money you need.
Taking out a personal loan can be a big help to a small business owner, but it is important to do your homework before signing on the dotted line.
Make sure you are getting the best rate and terms available to you so your personal loan remains a helpful tool rather than a drag on your finances.