Using Personal Loans to Fund Your Startup: Is it A Good Idea?

Technology-based startups are a vital part of the U.S. Economy. According to the Innovation Technology and Innovation Foundation, in the past decade, despite being relatively small compared to other businesses, technology-based startups managed to surge 47%. They drive competitiveness in the market and have become an essential driver of America’s economic growth.

 As new technology emerges, more and more have become entranced to tech startups. The want and thirst of these people to make a change in the world, along with the future opportunities it offers, made startups much more popular in recent years. Despite 90% of startups failing, many want to take a risk still, believing that the innovation in technology that they bring will rise above others.

 However, starting a business doesn’t rely on passion alone. It also involves the use of money for operations and other resources. Getting funding for your startup can become a challenge, especially if you don’t yet understand how the industry works.

What are Personal Loans?

Personal Loans are a type of loan that can be borrowed from a bank, online lender, or credit union.

 These loans can be paid in fixed monthly installments from two to seven years. The interest rate that your loan can have will vary greatly on how well your credit score and credit history are. Some rates can go as low as 6%, even lower if you have an excellent credit score. However, a bad credit score can limit your chances of getting a lower rate.

 The reason why personal loans are popular loan options is how they are relatively easy to apply. Unlike mortgages or auto loans, personal loans can be used in anything you need. From home improvements to significant events to small businesses, you can sure count on personal loans for a cash loan quick and easy.

 There are two types of personal loans. These are secured and unsecured loans.

 Secured loans would require you to put collateral. Collateral can come in the form of your house, car, or valuable assets that can pay off the total of your balance. Unsecured loans, on the other hand, don’t need collateral when you apply for it.

Funding Startups with Personal Loans

Only very few startups get the funding they needed from Angel investors. Every year, at least 500,000 startups Out of this number, only 1,000 or fewer companies snatch the eyes of venture capitalists, 30,000 if Angels and Angel Groups are considered. Only 6% of startups get the chance to fund their project from these sources.

 If you’re having trouble finding investors to fund your startup, you’re probably looking into loans right now as a solution. Small business loans can be a bit difficult to apply for since you still have to present your ideas to a bank, so they’d let you take out a loan. If you are rejected, you have to start over again.

 Since the easiest way to get funds for your startup is through personal loans, this idea might be the right answer for your problems. After all, you have higher chances of getting your application approved in a personal loan than in a small business loan. All you have to do is approach a bank or lender, present your credit score and history, negotiate terms, sign a few documents, and get the money you need.

 But is it a good idea to take funding for your startups through personal loans? Well, you can use personal loans for your startup. However, some disadvantages come with taking out a personal loan for your business.

Is it a Good Idea or a Terrible Mistake?

If you have a good credit score, personal loans can work out for you. However, a bad credit score can be detrimental to you. Since personal loans would affect your personal finances, a bad credit score can generate up to 36% of the interest rate. This is a high rate and can cause you problems in the future.

 There are also limits when it comes to the amount you can get on a personal loan. Lenders will usually offer $50,000 on average, and with bad credit, it can be lower. However, borrowers with excellent credit scores can reach up to $100,000. If your startup needs more money than that, then you need to look for other options.

 Defaulting on a personal loan will also harm your personal credit score since the loan is against your name. If it’s a secured loan, the lenders can take your assets to make sure they get back the money you’ve borrowed. Other than that, they can sue you.

 Getting a personal loan can be a good idea to start your business. However, you must generate enough money to pay off what you’ve borrowed. Don’t compromise your business and credit scores by defaulting on the loan you took.


Technology-based startups are an integral part of the American Economy. However, looking for a way to fund it may be challenging. Personal loans are a great way to jump-start your venture. It’s relatively easy to apply for compared to other business loans. With it comes disadvantages to both your personal credit score and startup dreams. Just be responsible enough to pay back what you owe, and you’re good to go.


READ  Meet the 50 fastest growing tech firms in Australia


Please enter your comment!
Please enter your name here