The quick answer is yes. Personal loans can and are often used to fund small businesses, but there are some important caveats to consider. While some lenders don’t care what you use the money for, others will deny loan applications from entrepreneurs looking for startup capital. Read SuperMoney’s expert and consumer reviews to find the best option for your business.

If you’ve been laid off and are having a hard time finding another job, becoming an entrepreneur may seem more appealing than continuing to send out resumes with no results. Or perhaps you have a longtime dream of being your own boss. Either way, one of the biggest obstacles you will face is finding the working capital you need to start your business. This article analyzes some of the financing options available to small startup companies.

Personal Loans

Family and friends can be a good place to start if you’re looking for people who will believe and invest in your new business idea. Nearly 40% of new businesses are financed in this way. However, if you need more capital than you can raise by drawing from your personal resources or those closest to you, you need a commercial loan. The problem is that most business loan providers are hesitant to extend business loans to startups. A personal loan for business startups could provide the capital you need to get your idea up and running so that you can eventually qualify for commercial loans. Check out what the best personal loans are to ensure that you know the best option for you.

What is the difference between a business loan and a personal loan? It’s a matter of risk. Usually, business loans are not personally guaranteed by the owner of the business. If the company goes under, its assets are liquidated to pay off creditors, but the personal assets of the business owners are not at risk. Not so with personal loans. It’s the reason Donald Trump has been able to file for bankruptcy four times without his personal net worth taking a hit.

Fund your business with alternative business loans

Until recently, small businesses did not have many alternatives to traditional bank loans. Businesses that needed capital fast often had to resort to costly merchant cash advances. Traditional merchant cash advances provide business with a lump sum and then skim a share of their daily credit sales. This provides a flexible payment system, but interest rates can be high: 120% APR and higher.

Small businesses have more options nowadayspanies such as OnDeck, Kabbage, and PayPal Working Capital provide short-term business loans at lower interest rates.

Bank or Credit Union Loans

If you have an established financial relationship with a bank or credit union, begin your personal loan search there. Traditional lenders usually provide the best rates and terms. However, their application process can be slow, and they have stringent eligibility requirements. Customers with few or no overdrafts in the past have a much better chance of being approved for a personal loan with a bank or credit union. Those who have successfully repaid an auto or mortgage loan in the past have a greater chance as well.

Home Equity or Other Collateral-Backed Loans

Before the housing market crash, many homeowners viewed their houses as cash cows. The overheated market allowed many homeowners to build significant equity within a few years of purchasing their homes, enabling them to finance expensive kitchen and bath rehabs, lavish vacations or big weddings with home equity loans. Today, home equity loans are less common, but they haven’t gone away. If your credit is less than stellar, a home equity loan or another type of personal loan backed by collateral may be your best option for financing your entrepreneurial venture. Just remember you could lose your home or property if you default on your home equity loan.