The UK is a nation of borrowers. With statistics from the Money Charity indicating an average household debt figure of £60,363 in January 2020, it’s undeniable that the country is reliant on lenders to keep its economy afloat – particularly given that over 12 million households are reported to have savings of less than £1,500.
For those who want to change their financial situation for the better, starting a business is a popular option and the UK plays host to nearly 6 million small and medium-sized enterprises (SMEs). From construction contractors and lawyers to vehicle dealers and local retailers, there’s money to be made in the UK but it can be difficult to get started and setting up a business isn’t always cheap. If you don’t already have the financial resources to set off on your entrepreneurial journey, sourcing funds from elsewhere will be essential. Whilst it is possible to seek a business loan from high street banks and building societies, applicants will be required to jump through some fairly significant hoops – including impressing the bank manager, and a personal loan could be easier to get.
For those frustrated with traditional lenders, there are alternatives for funding business growth and personal loans are among those most frequently sought out. Many small business owners treat their business and personal finances as one and the same, and so extending that relationship to borrowing may not be as unnatural as it seems. Here we look at some of the key information for business owners considering using a personal loan to support or grow their venture.
Why get a personal loan over a business loan?
Given that business loans are explicitly intended for use to set up, grow, or support a business, it follows that they are often the first port of call for entrepreneurs looking for some extra cash. Admittedly, business loans do often come with terms that reflect the fluid nature of the business environment and may even be offered with a lower rate of interest than many personal loans – but these benefits do not necessarily make them the natural choice for every commercial borrower.
For one thing, business loans often require a personal guarantee from the borrower and so a company director will still be on the hook for the money just as they would be if approaching a lender in their personal capacity. In a similar vein, whilst business loans might come with terms reflective of trading conditions, the same contract could include stipulations that severely limit the ways that the money can be used. Ultimately, whilst business loans are a useful tool in an entrepreneur’s arsenal, they can also be problematic for a number of reasons and there are lots of reasons why lenders might reject your business loan application.
In contrast, personal loans are much more widely available than business loans and owing to the variety of lenders on the market, borrowers may be able to access the money they need without undergoing extensive vetting or an arduous application process. These are loans that can be paid back over multiple regular instalments, and whilst borrowing in this way could leave a company director with a greater degree of financial responsibility, they will also be afforded a greater degree of control over their use of the money.
Is it legal to use a personal loan for business purposes?
One of the major deciding factors as to whether a personal loan should be used to grow a business is whether doing so will leave the venture on the wrong side of the law. This is again something that will be highly circumstantial, but most often the legality surrounding any use of loan funds will depend on any representations made to the lender at the point of application, along with any contractual terms they put in place.
As business loans generally require a personal guarantee, responsibility for the borrowing will fall on the shoulders of an individual anyway and so many lenders will not prohibit the use of loan funds for commercial purposes. Often, personal loan providers are much less prescriptive about the possible uses for the money they lend and so unless you are applying to a major high street bank it may be that no restrictions are imposed at all. Whilst all reputable lenders will conduct credit checks whether you apply for a business or personal loan, a bad credit score will not necessarily prevent a successful application and there are many lenders who are willing to work with borrowers who have a poor credit history.
How to get a personal loan for your business
The lending market is one of the UK’s busiest, and so there are lots of ways for business owners to apply for a personal loan. You can apply either in person on the high street at a traditional bank or building society, or via the internet where a great many direct lenders offer their products.
Business owners may also wish to consider whether an online credit broker could help them to secure the most appropriate personal loan for them. Little Loans, for example, is one well-reputed credit broker that matches applicants with the direct lender who is most likely to approve their application. With the ability to apply for a short term loan repayable over several months or even years, getting the money your business needs could be much quicker and simpler than if you were to apply via more traditional methods.
Finding the right solution for your business
In many cases, a personal loan could offer a viable and attractive solution for business owners looking to quickly access money to grow or support their business. That isn’t to say that borrowing in this way will be appropriate in all situations, though, and it’s important to ensure that any loan funds are not used for a purpose contrary to the terms and conditions under which they were lent.
There’s an effective financial solution out there for almost every business, it’s just a case of finding the right one.