Personal loans for small business owners
Small business owners who take owner distributions, pay themselves a salary, or report business income on personal tax returns can qualify for personal loans. Lenders evaluate the business's net income (after expenses) rather than gross revenue, which can create challenges when business deductions are aggressive. This guide explains how to position your income for approval.
Why apply here.
- 01Net business income (Schedule C) used for qualifying, not gross revenue
- 02Two years of personal and business tax returns typically required
- 03Loan amounts from $2,000 to $100,000 depending on lender
- 04Faster and simpler than an SBA loan for amounts under $50,000
- 05Soft credit check pre-qualification available at most online lenders
About this loan.
Will a lender care that the loan is for my business if I apply personally?+
Most personal loan lenders do not restrict the use of unsecured loan proceeds and do not ask whether you plan to use funds for personal or business purposes. A small business owner can apply for a personal loan and use the funds for business inventory, equipment, cash flow, or any other purpose. If you tell the lender the purpose is 'business,' some lenders may redirect you to a business loan product. The loan remains a personal loan with personal liability regardless of how you use it.
Do I need to provide business tax returns in addition to personal returns?+
Often yes. If you are a sole proprietor filing Schedule C, your personal and business returns are combined on your Form 1040. If you own an S-corp or partnership, lenders typically want 2 years of business returns (Form 1120S or 1065) plus your personal return to see your K-1 income. Lenders want to verify the business is profitable and that your owner income is sustainable.
My business had a bad year - will that disqualify me?+
One bad year is manageable if the prior year was strong and you can explain the circumstance (market conditions, a one-time expense). Lenders that use a 2-year income average will smooth out one weak year. If two consecutive years show declining net income, approval becomes harder. In that case, consider a co-borrower with stable W-2 income or apply for a smaller loan amount with more manageable payments.
Is a personal loan or a business loan better for my small business?+
For amounts under $50,000 and when you need funds quickly, a personal loan is typically faster and simpler. Business loans (SBA 7(a), bank term loans) offer higher amounts, longer terms, and business credit building, but require more documentation, longer timelines (weeks to months), and often collateral. Personal loans do not build business credit but fund in 1-3 days. For working capital or equipment under $50,000 on a short timeline, a personal loan usually wins on speed. For growth capital over $100,000, a business loan is the appropriate tool.