Personal borrowing for the business
Borrowing in your own name to fund the business: a home equity loan or line, a 401(k) loan, or a personal loan or card. Often easier to get than business credit, but you, your home or your retirement savings carry the risk if the business fails.
- Your home or other personal assets
How it works
The downside first: with personal borrowing, the debt is yours, not the business's. If the business cannot pay it, you still must, and the security can be your home or your retirement savings.
- Home equity loan or line of credit (HELOC): borrowing secured on your home. Federal rules require the lender to tell you that it will take a security interest in your home and that you may lose the home if you default. Under a HELOC, the lender can end the line and demand the whole balance early only in limited cases, such as missed payments or fraud.
- 401(k) loan: if your workplace plan allows loans, you can borrow from your own account, up to the lesser of $50,000 or the greater of $10,000 and 50% of your vested balance. You repay through set payments, at least quarterly, within 5 years. If you do not repay, the unpaid balance is generally treated as a taxable distribution, which can bring an early-distribution tax as well.
- Personal loan or card: unsecured, so no home is at stake, but you are still personally liable.
Consumer protections may not apply. Federal Truth in Lending rules (Regulation Z) cover credit for personal, family or household purposes and exempt credit mainly for business purposes. The lender decides in each case which it is. A personal credit card keeps its consumer protections even if you use it now and then for business, but a loan you take mainly to fund a business may be treated as business credit.
Before you borrow: keep the money and repayments clearly recorded as a loan from you to the business (or as your investment in it), so your tax preparer and any later lender or investor can see what happened.
Upsides and downsides
Upsides
- The lender looks at your own credit and home equity, not the business's track record
- A 401(k) loan comes from your own account, under your plan's rules
- You keep full ownership of the business
Downsides
- The debt is yours, whatever happens to the business
- Your home or retirement savings are at stake
- Consumer protections may not cover credit taken mainly for business
Risks
- You can lose your home if you cannot repay a home equity loan
- An unpaid 401(k) loan becomes taxable income, and your retirement savings shrink
- Mixing personal and business money can cause problems with taxes and later lenders
What it costs
- How it is priced
- Interest set by the lender, or by your plan for a 401(k) loan
- Costs that are easy to miss
- Closing costs and appraisal fees on home equity borrowing
- The growth your retirement savings miss while money is lent out from your 401(k)
- Tax, and possibly an early-distribution tax, on a 401(k) loan you cannot repay
Limited by your home equity, your credit, or for a 401(k) loan, $50,000 or half your vested balance if less.
Have a quote? True cost of a loan: work out the APR and total cost
Does it fit?
Could fit when
- The business is new and lenders want a track record you do not have yet
- A bank has turned the business down for a small loan
Unlikely to fit when
- You would not personally guarantee the business's debts, and this puts you on the hook directly
- You need a large amount, more than personal borrowing usually reaches
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative
- Open to businesses with no sales yet
- Your own credit, income and assets, not the business's
- Equity in your home, or a workplace retirement plan that allows loans
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all bank and mainstream debt
0%
0 of 3 ticked
- Personal credit report checked
- Household budget without the business
- Written record of the money
Regulation and protections
Regulators: Consumer Financial Protection Bureau (CFPB); Internal Revenue Service (IRS); U.S. Department of Labor (DOL).
Who runs it: Private providers, nationwide.
Credit for personal, family or household purposes is covered by federal Truth in Lending rules (Regulation Z), including home equity line rules; credit mainly for business purposes is exempt. Retirement plan loans follow IRS and Department of Labor rules and your plan's own terms.
Types of provider: Banks and credit unions; Your workplace retirement plan, for a 401(k) loan.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 20, 2026.
Sources
- IRS: Retirement plans FAQs regarding loans · checked October 20, 2026
- 12 CFR 1026.40 (Regulation Z): requirements for home equity plans · checked October 20, 2026
- 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit · checked October 20, 2026
- 12 CFR part 1026, Supplement I: official interpretation of 1026.3(a) (primary purpose, business and consumer-purpose cards) · checked October 20, 2026
Something wrong or out of date?
Every fact here comes from a source, and rules and limits change. Email what looks wrong to data@fundladder.uk and, if you can, where you saw the right information. We use your email only to check the correction and reply. Privacy