If you have a great personal credit score, you might be able to take out a loan from a bank, credit union, or online lender. Almost all lenders will factor in your personal credit history when you apply for a business loan, but some lenders may want to see a credit score for your business, which could be a problem for a brand-new startup business.
Alternatively, you might want to skip the business loan entirely and ask for a personal loan from your local bank. If your personal credit is better than your business’s credit, these loans can have a lower interest rate, which is an obvious plus. And when entrepreneurs have no track record to show the bank, it makes sense to ask the bank to focus on personal credentials instead.
But despite these benefits, you might run into a few problems:
- Messy bookkeeping—You really want to keep a clear split between your business finances and personal finances whenever you can. Tax season is stressful enough without a confusing conglomeration of professional and personal financial records.
- Personal liability—Even if you signed up for an LLC for the limited liability, using personal loan money could leave you fighting to protect your personal assets if your company goes to court.
- Less options—Business loans can include options for specific business issues, including SBA-backed loans, equipment or invoice financing, and disaster loans.
Instead of personal loans you could also take a look at personal credit cards. Although personal cards usually have a smaller credit limit, a personal card dedicated to business expenses might help with small purchases while you wait for your business to generate income. As with any credit card, pay off your balance early and don’t borrow what you can’t pay back. Just remember that if you use a personal credit card, you’ll be building your personal, not your business, credit score.
If you do choose to go into personal debt for your business, aim to keep your debt limited to only the expenses needed to get your business rolling. Some good examples would be purchasing equipment to create your product or building a marketing team.