In today’s dynamic economic environment, securing the right funding can transform an idea into a thriving enterprise. Personal loans have emerged as a viable option for entrepreneurs looking to launch or expand small businesses with flexible funding based on personal credit.

Small Business Lending Market Overview (2024–2025)

The small business lending market is undergoing rapid growth, driven by stakeholders seeking capital for startups and post-pandemic recovery projects. In 2024, the SBA approved over 70,000 loans totaling $31.1 billion, marking a 13% value increase and 22% jump in approvals from the prior year. The average loan size reached $443,000, underscoring robust demand and confidence in small business ventures.

Early 2025 data reveals the SBA’s second-largest 7(a) lending volume since 1991, with 81% of these loans at or below $500,000 and more than half under $150,000. Meanwhile, community banks have stepped up, reporting a 30% increase in loans under $500,000 from 2021 to 2024, addressing the growing need for startup capital.

Alternative financing channels are also expanding. The embedded lending market hit $6.35 billion in 2025 and is projected to soar to $23.31 billion by 2031, reflecting a 20.4% compound annual growth rate. This trend highlights the shift toward embedded lending solutions that seamlessly integrate credit options within non-traditional platforms.

Demand, Approval Rates, and Credit Standards

Late 2024 saw demand for small business loans rise for the first time since 2022, even as approval rates dipped due to tighter credit standards. Outstanding loan balances climbed while new loan originations experienced a slight year-over-year decline. Nevertheless, interest rates on new term loans and lines of credit fell in Q4 2024, creating a more favorable rate environment for borrowers.

Delinquencies and defaults improved in early 2025, with a 3.37% default rate and 1.70% delinquency rate (31–90 days). While still cautious, lenders may gain confidence from these downward trends, though uncertain macroeconomic trends and policy risks remain on the horizon.

What Are Personal Loans and How Can You Use Them to Start a Business?

Personal loans are unsecured or secured loans issued based on an individual’s creditworthiness rather than business performance. For startups without established credit, personal loans serve as a critical funding mechanism, offering fast funding based on personal credit.

Entrepreneurs commonly use personal loans to cover a variety of startup expenses, including initial inventory, marketing campaigns, lease payments, and operational costs. Because personal loans often carry shorter terms and higher interest rates than business loans, careful budgeting and repayment planning are essential to avoid financial strain.

• Initial inventory purchases or equipment.
• Marketing and advertising expenses.
• Lease payments and operational costs.

Comparing Personal Loans vs. Business Loans for Startups

Choosing between personal and business loans requires weighing the pros and cons of each. Personal loans can be obtained quickly but come with personal liability, while business loans may offer better rates but demand stringent eligibility.

This comparison illustrates that while business loans might offer longer repayment terms and lower rates, personal loans fill the gap when speed and minimal requirements are paramount.

What Lenders Require—and How to Boost Your Approval Odds

Lenders typically evaluate personal financial records, including bank statements, credit reports, and tax returns. For business loans, additional documentation such as business formation papers, licenses, and a detailed business plan is necessary.

To enhance your approval chances, focus on:

• Maintaining a personal credit score of 680 or higher.
• Gathering complete financial records and projections.
• Highlighting relevant industry experience and a clear repayment plan.

Alternatives to Personal Loans for New Businesses

While personal loans are convenient, exploring other funding channels such as SBA 7(a) loans for larger financing amounts, microloans from community lenders targeting small-dollar needs, and embedded lending platforms offering seamless credit integration can lead to better terms or match specific business requirements.

Latest Data and Forecasts: What 2025 Means for Small Business Borrowers

Key 2024 milestones include over $31.1 billion in SBA loans approved, an average SBA loan size of $443,000, and a 22% share of borrowers using online lenders. The embedded lending market is projected to grow from $6.35 billion in 2025 to $23.31 billion by 2031, indicating robust fintech expansion.

Pro Tips: How to Prepare for a Successful Loan Application

Preparation can make or break your loan application. To present yourself as a low-risk borrower:

• Build and maintain a strong credit history across personal and business accounts.
• Create a detailed, realistic business plan outlining cash flows and milestones.
• Keep personal and business finances well-separated for clarity.
• Maintain transparent communication with potential lenders about any financial challenges.

These practices demonstrate professionalism and financial responsibility to lenders, improving your chances of securing favorable loan terms.

In summary, personal loans offer an accessible entry point for entrepreneurs embarking on new business ventures. By understanding the broader lending landscape, comparing loan options, meeting lender requirements, and staying abreast of market trends, you can harness personal credit to fuel your startup’s growth. With careful planning and strategic preparation, your dream business can move from concept to reality.