Start a Small Business by Taking a Personal Loan in 2019

Everyone knows the saying, “No one ever got rich by being an employee.” In this day and age, with everything getting more expensive, it’s really hard to keep up with expenses by only having a fixed income. This is why many Filipinos are thinking of starting their own business to strengthen their financial capacity or to have an alternative source of income.

I know what you’re thinking, “But starting a business costs a lot of money and I don’t really have the capital for it!” Well, there are the tried-and-true financing options for funding your new business: family and friends, private investors, crowdfunding, and more.

Although, if you want a hassle-free way of raising funds to start a small business to establish  financial security, you can always opt for a personal or business loan!

However, many lenders offer different types of loans that you can consider according to your needs. The most common loans for starting a business are Business Loans and Personal Loans. It is important to know what sets them apart so you get the best value from your loan.

Business Loan vs Personal Loan

At first glance, Business Loans and Personal Loans for business purposes sound very similar. Many lenders offer both of these loan products, but they have very clear differences that will help you decide which loan is better for you.

Business loans are intended strictly for financing a business to cover operation costs, payroll, refreshing inventory, etc. To qualify for a business loan, you must first have a business so that the lenders can determine the strength of your business to know the risk of giving you a loan. Since business loans usually involve bigger amounts than personal loans, lenders are often more careful with giving approval.  

Business loans also require a lot of paperwork which lenders use to determine risk. Some factors that may also affect approval are:

  • The business owner’s personal credit score
  • The business’s credit history
  • Time in business
  • Cash flow
  • Profitability
  • Industry
  • Annual revenue   

Personal loans on the other hand, are loans given to finance personal matters like home improvement, debt consolidation, education, or for this case,  to start your own business. Lenders assess your credit score as well as your personal income to determine the risk of lending you money. It would be good to have a good credit score so that you won’t have a hard time getting approved.

Personal loans are usually easier to apply for, and approval is faster than business loans. Plus, there are a lot less documents needed and often times, require no collateral. The payment terms are also more flexible than business loans. Also, personal loans have lower interest rates.

The bottom line is: When you’re still looking to start your own business, it would be best to apply for a Personal Loan since securing a Business Loan is tough. If your business needs are not really that high, you can opt for a Personal Loan as you can loan from P20,000 to P2 Million from lenders.

Business loan lenders want to see a solid plan and knowledge of the industry you’re in before approving your loan. On the other hand, personal loan lenders simply need to feel sure that you’ll pay the loan back.

Should you use a personal loan for your business?

In most cases, many lenders will allow you to use your personal loan for business purposes but it’s best to check with them beforehand if you can. For small business owners that are just starting out, you can get the capital for your business from personal loans rather than business loans.

Taking out a personal loan could be the difference between getting the capital you need for your business, or getting none at all. Here are some advantages of taking out a personal loan for your business:

  • Personal loans are easier to get than business loans because lenders will base approval on your personal finances rather than the business’.
  • Having a good credit score may reduce the interest rate of your personal loans.
  • Personal loan lenders are not very strict with how you use your personal loans. You may split up the loan proceeds according to how you want to use them.
  • Paying off a personal loan is done monthly which makes it more manageable and easier to budget.

Although, if you don’t need a large amount and are able to pay it back quickly, you may opt for quick cash loans online. These cash loans usually have only one day processing and are done fully online.

Where to apply for Personal Loans and what are the qualifications?


When it comes to loans, banks are usually the first that comes to mind. Banks offer lots of loan products including personal loans. They usually offer very low interest rates and have manageable payment terms. Personal loans normally don’t require you to have a collateral and require far less documents than a Business Loan.

Private Lenders

Aside from banks, there are also private lenders that offer personal loans for individuals. Although they offer higher interest rate, the application process is faster and they require less documents. The loan application process is usually done online which means you don’t have to file the loan application in person. Plus, private lenders are less strict with what you do with your Personal Loan.

Government Institutions

For Personal Loans, Government institutions don’t lend the biggest amounts. However, they have the lowest interest rates for all lenders. You can qualify for a personal loan if you are a consistent contributor. Think of it as using your own contributions as your capital. Government Institutions usually require a lot of documents and the payout of the loan proceeds take longer than banks or private lenders.

How to qualify for a loan

  • You should at least be 21 years old and not more than 65 years old upon loan maturity
  • You should at least have a monthly income of P10,000

Required Documents are usually:

  • At least 2 months payslip
  • Credit Card Statements
  • Government IDs

It’s really not that hard to get a loan to start your business. Even if you’re an OFW, you may be able to apply for a loan. We have a list of the best OFW loans with low interest rates that can help you jump start your own business!

What kind of businesses can you fund with your personal loan?

Building a business entails risk. That’s why you should think carefully about what business you are going to fund. Here is a list of small businesses that you can start with your personal loan funds:

1. Online Selling

With the power of digital media nowadays, everyone is now online. You can use the power of social media to start your own online shop by reselling items. The only capital you’ll need here is the funds for the items you’re going to resell. Just make sure that you’re targeting the right market.

2. Food Carts or Trucks

You have two choices with this. You can sell your own creation, or you can do franchising. The good thing about food trucks is that, you can go where your market is and you don’t necessarily need to rent space since you’re in a truck. Just make sure to have the necessary permits on where you plan to park your truck. Food carts are also good when you’re in strategic locations such as train stations, malls, schools, or parks.

3. Computer Shop / Internet Cafe

With children getting more exposed to technology at a very young age, computer shops are a good business especially in areas far from the city. You can start with a few computer units and renovate a part of your home to be a computer shop so that you can save on rent and have total control over your business.

Taking out a loan isn’t always a bad thing. If you’re taking out a loan and spending it on something that will increase in value over time, the profit you gain will pay off the interest of the loan and will help you start your business. If ever you don’t want to start a business, you can go into stock investments as an alternative way of growing your money.

A lot of successful businessmen achieved success because they relied on loans to jump start their businesses. Just like Sam Walton, the owner of the famous store Walmart, who loaned $25, 000 to fund his first store back in 1945. With his success in his business, he is now considered to be one of the richest men in the world.

Debt is mostly seen as something negative, but as long as you have the plan and means to pay it back, it may be the push you need to achieve your own success in life.

Image source: (cropped)

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Christian Cachero

Christian is a Software Engineer by profession, but a writer at heart. He used to be a writer for his school paper, but decided to take Computer Science as his career path. Whenever he’s interested in something, he will research everything about it. He is very frugal in terms of money but also a very laid back person.

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