Should I Use a Personal Loan for My Business?

January 16, 2017
5 minutes read

This is a condensed version of an article by OnDeck. Reprinted with permission.

By Ty Kiisel

Many small business owners leverage their personal credit in the early years of starting a business, but as quickly as is possible, it’s better for a business to start building business credit. Here’s why.

A personal loan doesn’t help build your business credit

Building a strong business credit foundation should be a priority during the first few years in business. This can feel like a catch-22—you need to have business credit to demonstrate you can be responsible with business credit, but you can’t get business credit because you don’t have a track record that demonstrates you can be responsible with business credit. A challenge? Yes. But there are some things you can do.

One option is pursuing trade credit relationships with their suppliers, according to Peter Bolin, Director of Consulting and Analytics for Experian, in an interview published last year on “Make sure they report to the credit bureaus, like Experian,” he adds. If they don’t, your good credit practices may be building a good credit record with that particular vendor, but you’re not doing anything to build you business credit generally. This is important enough to encourage those suppliers who don’t report to do so.

You can also apply for a business credit card, or for a small business loan via specialized small business lenders like Lending by Wave, in partnership with OnDeck, and make sure you make those payments on time. This will dramatically increase the depth of your credit report so when you do need that $100,000 from the bank or other lender, you’ll be likely to get approved.

You might be hurting your personal credit score

Maintaining a good personal credit score will always be important. With that in mind, using your personal credit for business expenses might not be the right choice.

A big part of your personal credit score is based upon how much credit you have available versus how much credit you actually use. Maxing out a credit card, for example, could negatively impact your personal credit score. This may be true even if you regularly make the required payment every month.

When I recently asked if using personal credit for business might hurt a borrower’s personal credit score, Bolin’s response was, “Yes, it does. Their higher utilization of personal credit to the credit available to them pulls down their personal scores.”

Business owners will always find a way for their projects to survive and succeed. But to be successful in the long run, remember to preserve your personal credit reputation AND build a business credit score at the same time.

—Ty Kiisel writes about small business and small business finance for OnDeck, and outlets like An expanded version of this article, with additional questions for you and your potential lender, is available at OnDeck.

Wave now offers Lending by Wave — small business loans and lines of credit, powered by OnDeck. Learn more and apply for a loan in minutes:

By Wave Staff

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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