The Complete Guide to Loans for Therapists

A personal loan can help you close cash flow gaps when you’re just getting your therapy practice off the ground. And you can even use personal loans to cover business expenses.

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But any loan you qualify for increases your personal debt. And if you fall behind on loan payments, or default on a loan, it can seriously impact your credit rating, or even increase your likelihood of bankruptcy.

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Here’s what you need to know before applying for a personal loan when you’re a self-employed therapist: Your options, the best way to manage debt and maintain your credit rating, and how (and when) to use personal loans to finance your business.

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How does a personal loan work?

A personal loan is a type of installment loan. With an installment loan, a lender lets you borrow a lump sum of cash. You pay back the cash—plus interest—in regular installments.

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Banks, credit unions, and online lenders are all typical sources of personal loans. When you apply for a loan, the lender takes into consideration your credit rating, income, and debt-to-income ratio (DTI). More on that below.

The pros and cons of personal loans

A personal loan can give you access to capital to cover personal expenses. You can even use a personal loan to pay for your therapy practice’s expenses. But like anything else, personal loans have their drawbacks as well as their benefits.

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Benefits of personal loans include:

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Credit building: Making regular monthly payments helps to build your credit rating. Thirty-five percent of your FICO credit rating is based on payment history.
Flexibility: You can use personal loans to pay for just about any expense, or to pay for multiple expenses. Keep in mind, though, that some lenders restrict borrowers from using personal loans to start new businesses.
Competitive rates: The APR for a personal loan ranges from 6% to 36%. If you meet a lender’s requirements, there’s a good chance you will end up paying less interest on a personal loan than you would on an equivalent amount of credit card debt.
Debt consolidation. You can use a personal loan to consolidate debt from other sources, like credit cards and lines of credit. It’s a popular strategy for borrowers aiming to get out of debt, and may reduce the total amount of interest you pay.
No collateral. Most personal loans are unsecured, meaning you don’t need to pledge collateral. That prevents you from losing a valuable asset, like your home or your car, in the event you default on the loan.

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Drawbacks of personal loans include:

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Unnecessary debt. It may be tempting to take out a loan to cover a large expense rather than saving up the money and paying for it in cash, or to use a loan to make purchases you would not make otherwise.
High rates for borrowers with poor credit. While the APR on a personal loan may be as low as 6%, keep in mind that those rates are usually reserved for highly qualified borrowers. At the other end of the spectrum, if you have a less-than-ideal credit rating, you could end up paying closer to 36%.
Origination fees. Most loans require an origination fee, which covers the cost of processing and granting your application. Origination fees range from around 1% to 8% of the loan principal.
Penalties. Lenders may charge penalties on late payments or on scheduled bank draws that fail due to insufficient funds. Some lenders also charge prepayment penalties in the event you pay off a loan before the end of its term.

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If you’re unsure about whether you should take out a loan, or how making loan payments will affect your personal finances in the future, consult with a qualified accountant.

Personal loan key terms

Before shopping around for a loan, make sure you’re familiar with these basic concepts:

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Annual percentage rate (APR): The total yearly cost of a loan. The APR includes both the interest rate charged on the loan and any additional fees, including origination fees. A loan’s APR is always higher than its interest rate—something to keep in mind when you consider offers from lenders.
Borrower default: Failure over an extended period to make payments on a loan. In the event you default on a loan, a lender will typically send your debt to a debt collector, which hurts your credit score.
Fixed interest rate: An interest rate that doesn’t change over the course of the loan term, which results in regular and predictable payments.
Hard credit check: A credit check made by a lender when you apply for a loan, which appears on your credit report. On average, a hard credit check will lower your credit score by four points and appear on your credit report for up to two years.
Loan deferment: Agreement by a lender to suspend loan payments when the borrower faces periods of financial hardship. Interest may still accrue on the loan while it is deferred. A loan deferment extends the term of the loan.
Loan limit: The maximum amount a lender will allow you to borrow once you are approved. You are not required to borrow an amount equal to the limit. It’s usually best to borrow only the amount you need and no more.
Loan terms: The period over which you repay a loan. Most personal loans have terms of three to seven years.
Secured loan: A loan with collateral attached to it. Typical collateral includes vehicles and homes, but for a personal loan it may include cash in a savings account or a certificate of deposit. In the event you default on a loan, the lender may seize the collateral.
Soft credit check: A credit check that has no impact on your credit score. When you prequalify for a loan, a lender does a soft credit check in order to give you an estimate of what your APR and term would be in the event you apply and qualify.
Unsecured loan: A loan without collateral attached to it. Most personal loans aside from auto loans, home equity loans, and mortgages are unsecured.
Variable interest rate: Interest rate on a loan that fluctuates according to a financial benchmark. With a variable interest rate, the amount you’re required to pay in installments changes over time.
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Personal loans vs. business loans

If you’re considering taking out a personal loan to help fund your therapy practice, you may be debating whether a business loan is the better option.

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While they fundamentally work in the same way—a lender charges interest on the principal you borrow, and you repay the total amount over the term of the loan—there are some other important differences to take into account.

Application requirements

For a personal loan, it’s enough to provide a lender with your proof of income and to consent to a credit check. Business loan applications are more stringent.

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When applying for a business loan, be prepared to provide:

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Your business license and registration
A business plan
Bank statements
Current accounts receivable (if applicable)

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The lender may run a hard credit check on your business.

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Lenders want to make sure that your therapy practice is sustainable before lending it money, and that it earns enough income to cover its loan installments in addition to its operating expenses.

Credit score requirement

To qualify for a personal loan from a traditional lender, you usually need a credit score of at least 600. For a business loan, you or your business’s credit score should be 680 or higher.

Interest rate and fees

Personal loan APRs range from 6% to 36%, whereas business loan APRs range from 6% to 30%.

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While origination and other fees for personal loans range from 1% to 8%, fees required for business loans are more variable and may be higher.

History

To qualify for a personal loan, typically the only history you need to provide comes from your credit report.

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For a business loan, on the other hand, most lenders require you to have been in business for at least two years. Being in business longer may increase your likelihood of qualifying. So it benefits you to get your practice well established before applying for a business loan.

Purpose

You can use a personal loan for just about anything, including covering business expenses. In most cases—except when it comes to certain restrictions, such as on illegal activity—a lender does not care how you use your loan so long as you pay it back according to your loan agreement.

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When you apply for a business loan, however, the lender may require you to explain how the funds will be used.

Loan amounts and terms

Personal loans typically range from $1,000 to $100,000, with repayment terms of three to seven years. Business loans may range as high as $5 million, with terms of up to 10 years (or sometimes twenty-five).

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That may result in lower loan payments. But because the loan term is longer, interest has more time to accrue. You could end up paying more for a business loan with a long term than for a personal loan with a shorter term.

Collateral and personal guarantees

Because business loans are typically larger than personal loans, lenders are more likely to require a borrower pledge collateral. Or, rather than collateral, they may require a personal guarantee.

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A personal guarantee makes you personally responsible for the loan your business takes out. If your practice is a limited liability company (LLC) or professional limited liability company (PLLC), then you and your business are two separate legal entities. So long as your business meets the conditions of operating as an LLC, you are not personally responsible for your business’s liabilities.

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When you offer a personal guarantee on a business loan, that changes. In the event of default, a lender may come after your personal assets, not just your business’s.

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Types of personal loans for therapists

Besides the typical unsecured personal loan, lenders may offer other types of loans to suit your needs. You also have options for borrowing that don’t quite meet the definition of a loan, but which are worth considering when you’re looking for access to capital.

Secured personal loan

You may be able to qualify for a secured personal loan by pledging cash in a savings account or a certificate of deposit.

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In that case, your APR will likely be lower than if you took out an unsecured loan. But, in the event of default, the lender may seize the collateral.

Debt consolidation loan

You use a single debt consolidation loan to pay off multiple debts. Then, rather than making multiple payments per month on different debts, you make a single payment towards your debt consolidation loan.

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Besides simplifying your finances, another benefit of a debt consolidation loan is that its interest rate and the total interest you pay may be less than the combined interest rates of the loans you consolidate. For more on debt consolidation, check out our article on how to get out of debt.

Cosigned and joint loans

If you’re unable to qualify for a loan on your own, you may be able to qualify with help from a cosigner.

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A cosigner is equally responsible for your loan. Their income must be enough to cover loan payments in the event that you’re unable to pay.

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If both you and your cosigner default on loan payments, both your credit scores will be hurt, and you may both be pursued by collections agencies.

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Joint loans work similarly to cosigned loans. When you both qualify for a joint loan, both you and the person you sign the loan with are responsible for the debt. However, with joint loans, the other person also has access to the funds.

Personal line of credit

A personal line of credit gives you access to a certain amount of funds from which you can borrow. Rather than paying interest on the total amount—as you do with a personal loan—you only pay interest on what you take out.

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Qualifying for a line of credit may give you flexible access to capital for covering emergency expenses without burdening you with the interest and repayment terms of a personal loan.

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A line of credit may be secured with funds in your bank account (common with traditional lenders), or unsecured (more common with online lenders and small banks). A personal line of credit usually has a variable rate.

Credit card cash advances

A credit card may allow you to take cash advances either by withdrawing funds from an ATM or transferring them to a bank account.

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While credit card cash advances may be able to cover emergency expenses in a pinch, it’s a bad idea to rely on them for day-to-day spending, and especially for business spending. Cash advances may come with cash advance fees, and most charge higher interest rates than normal credit card debt.

Title loans

You may be able to qualify for a personal loan by pledging the title to your car as collateral. That naturally puts you at risk of losing your vehicle in the case of default. Also, most title loans come with high penalties in the event of late payments.

Payday loans

Payday loans are often described as a form of “predatory lending,” and the name fits. They’re small loans available to people with poor or zero credit, with high fees and interest rates of up to 300 percent.

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In a serious emergency, a payday loan may be able to help you. But payday lenders make the bulk of their profits from individuals who take out multiple payday loans over time, always falling short of paying off their original loan and entering into a cycle of debt. Due to astronomical interest fees, it can lead to disaster.

Cash advance apps

Cash advance apps work on a similar model to payday loans, but in app form. For a monthly fee, you get access to fast cash—usually in amounts ranging from $250 to $500—which you are required to pay back the next time to get a paycheck. While cash apps may advertise 0% APRs, the interest you pay could amount to as much as 300 percent once fees (often buried in the fine print) are taken into account.

How do student loans affect your credit?

According to Heard’s 2025 Financial State of Private Practice report, 38% of therapists who said they had student loans owed $100,000 or more. One in three therapists said paying off student loan debt was their top financial goal in 2025.

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If you’re like many therapists, you’re continuing to pay for your education even after you’ve gone into private practice. If that’s the case, and if you’re considering applying for a personal loan, you may be wondering: How will student loan debt affect your odds?

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Student loans have a direct impact on your credit score. That impact may be either positive or negative.

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Your credit score is affected by your payment history, length of credit history, credit mix, amount owed, and recent applications. Here’s how student loans affect each:

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Payment history. Paying installments in your student loan in a timely fashion helps to build your credit score. Making late payments can negatively impact your credit score, and late payments may show up on your credit report for up to seven years.
Length of credit history. A long credit history—that is, a history of making payments on time and managing your debt—helps to build your credit score. If your credit history is made up mostly of late payments, however, it could have the opposite effect.
Credit mix. Having multiple types of credit positively impacts your credit score. Provided you make payments on time, having student loans in addition to other types of credit, like credit cards, has a net positive effect.
Amount owed. The total amount you owe affects your credit score. It also affects your DTI, which lenders take into account when considering your application.
Recent applications. When you apply for a student loan, lenders make a hard credit check. This slightly reduces your credit score (although multiple applications may have a negative cumulative effect). By now, it’s unlikely you will feel the impact on your credit score of applying for student loans—but it’s worth mentioning, as it’s one one of the ways student loans affect it.

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The bottom line is that a student loan is much like any other loan. If you make timely payments, your credit score will improve. If you make late payments, your score will suffer.

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However, it’s worth highlighting the fact that student loans do affect your debt-to-income ratio (DTI). Lenders look at that when considering your application. If you’re considering taking out a personal loan—or if you’ve applied for multiple loans and been rejected—then paying down your student loan debt will increase your odds of qualifying in the future.

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Where to apply for a personal loan

When it comes to applying for personal loans, you have three options: A bank, a credit union, and an online lender.

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Before choosing one place to apply, prequalify with each financial institution you’re considering. That helps you weed out the ones that aren’t right for you without negatively impacting your credit score.

Personal loans from banks

Compared to other options, a bank typically has more stringent requirements for approving personal loans. But if you already have an account with a particular bank, that may count in your favor when applying for a loan; the loan officer will take into account your history as a customer and account owner when considering your application.

Personal loans from credit unions

Credit unions usually have less stringent requirements than banks, and may be willing to qualify you for a loan when a bank will not. You do have to be an existing member of the credit union in order to apply, however. And the amount a credit union qualifies you for may be less than a bank would.

Personal loans from online lenders

There exist a large number of online lenders catering to individuals with virtually every kind of credit history. If you have a very good or exceptional credit score, you may be able to qualify for a large loan with a low APR. If your credit score is average, your APR will be higher and the loan amount smaller.

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Unlike with a bank or a credit union, an online lender doesn’t have any physical branches, so you won’t be able to speak face-to-face with a loan officer.

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When considering online lenders, take the time to shop around and prequalify with a variety of companies. The types of loans available vary widely. Also take the time, before signing any agreements, to read the fine print and make sure you won’t be surprised by any hidden fees.

How to qualify for a personal loan

When considering your application, a lender looks at:

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Your credit score. Most lenders require you to have a credit score of at least 600, but some—particularly online lenders—cater to individuals with low or nonexistent credit scores. Expect to pay more and borrow less if your score is under 600 points.
Your income. Lenders typically have a minimum annual income limit for borrowers. Some make this limit public, others do not. (SoFi, for instance, requires applicants to have an annual salary of $45,000 in order to qualify.) To prequalify, it’s enough to provide your salary. To qualify, you’ll need to provide hard data. For a self-employed therapist who doesn’t receive a paycheck, that typically takes the form of bank deposit records and past tax returns.
Debt-to-income ratio (DTI). Your DTI is the portion of your gross monthly income that goes towards servicing debts. As a guideline, your DTI should be 36% or less—that is, you spend at most 36% of your monthly income servicing debt—in order to qualify.
Collateral. In most cases, you won’t need to pledge collateral for a personal loan. For lenders that do require it, however, collateral usually takes the form of cash in a savings account or certificates of deposit.

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When applying for a loan, be prepared to provide:

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Proof of your identity
Proof of address
Income verification (bank deposit records or tax returns)
A completed application (formats vary from one lender to the next)

How to increase your odds of qualifying

Before you start shopping around for loans—or, if you’ve already attempted to prequalify for multiple loans and been rejected—consider doing the following to increase your odds of success:

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Ask for less. If you need a personal loan to cover emergency expenses, you may not have much wiggle room. But wherever possible, keep the amount you apply for to a minimum.
Check your credit reports for errors. Incorrect credit limits, accounts you’ve closed that still appear as open, and accounts registered in your name that you don’t actually own may all erroneously show up on your credit report.
Lower your credit utilization. Paying down debt decreases your credit utilization and may improve your likelihood of qualifying for a loan. You can also request increased credit limits on credit cards and lines of credits; increased limits lower your utilization.
Start paying yourself a salary. Lenders want proof of stable monthly income. Paying yourself on a regular biweekly schedule—rather than taking owner’s draws from your practice whenever you need them—may help your chances of qualifying.
Cut yourself a bigger paycheck. If you already pay yourself on a set schedule, and if you can afford to do so, increasing your salary may increase your DTI and improve your odds with lenders.
Get a co-signer. A partner, spouse, or family member with a good credit score may be willing to co-sign a personal loan with you, allowing you to qualify when you would not be able to do so otherwise.
Consider a secured loan. A secured loan is less risky for a lender. Not all personal lenders offer secured loans, but research those that do; if you’re able to pledge collateral, a secured loan could be the way to go.
Build your credit. The slowest (but one of the most effective) ways to increase your odds of getting a loan is to build better credit over time. Paying down debt and staying on top of monthly payments are key. If you’re not in a rush to get a personal loan, then spending a year or two taking steps to improve your credit could improve your chances of qualifying.

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How a personal loan affects your finances

Once you qualify for a loan, it will have an impact on your finances. Typically, that means:

Monthly payments

You should be prepared to budget for monthly payments on your loan. That may mean cutting other personal expenses, or prioritizing loan payments over other recurring spending like contributions to savings accounts.

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For more, check out our guide to budgeting for therapists.

Your credit rating

After getting a loan, you should expect your credit score to decrease slightly. You will also likely have difficulty getting another loan or a new credit card immediately after signing up for a personal loan. Your credit score and your eligibility for new credit will both improve over time as you make payments on the loan.

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That being said, by continuing to make regular payments and by gradually decreasing your overall debt, you can use a personal loan to build your credit history, improve your score, and increase your likelihood of qualifying for new credit in the future.

Forfeit risk

If you pledged collateral for a secured loan, it could be seized in the event you default. While that doesn’t have an impact on your day-to-day finances, it’s important to keep in mind when managing your spending, making payments, and considering whether to take on new debt.

The corporate veil

If your practice is an LLC, your personal assets are protected from liability (debt) your business takes on, as well as from legal proceedings, so long as you meet certain conditions. One of those conditions is maintaining the corporate veil: Keeping your personal and business finances entirely separate. Using funds from a personal loan breaks the corporate veil, and could lead to increased personal liability.

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For more information, see What Therapists Need to Know About Liability.

How to use a personal loan for your therapy practice

A personal loan is not equivalent to a business loan. It doesn’t have the benefits of a business loan—longer repayment terms and low interest—and it affects your personal liability differently.

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First, before deciding to use a personal loan for your therapy practice, decide whether it’s the right choice for you. Then set in place a system that helps you get the most out of your loan without risking damage to your credit.

When should you use a personal loan to fund your therapy practice?

There are a few good reasons you may be considering taking out a personal loan for your therapy practice:

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The practice is new. Business loans require you to operate for at last two years before you can qualify. Personal loans bypass that requirement.
Your income is still growing. Even if you’re on a steady growth trajectory, you may be struggling to cover your expenses. A personal loan can help you pay the bills until you’re in a more secure position.
Your income is unstable. Ups and downs in the early days of your practice may make it hard to pay yourself on a regular schedule. A personal loan can help you cover personal needs so you can leave more money in your business to cover business expenses.
You’re planning to expand. Hiring contractors or employees or moving to a new office may require an outlay of capital that you wouldn’t normally be able to afford. Provided your expansion yields results—that is, a higher income—using a personal loan to cover these expenses may be a good decision.

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These are all good reasons why you may want to use a personal loan for your therapy practice, but they’re not necessarily good reasons why you should.

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Before taking out a loan, ask yourself:

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Will you be able to make monthly payments? Don’t depend on projected increases in revenue to cover your loan payments in the future. That is, unless you can make payments with your current income, it’s risky taking out a loan. Loan payments should fit into your current budget.
Can you afford to lose collateral? If you’ve pledged collateral for a secured loan, be realistic about the fact that you may eventually lose that collateral in the event of a default. If losing that collateral would devastate you financially, then a loan—or at least a secured loan—may not be the best choice.
How will your cosigner be affected? If you cosigned a loan with another person, then it’s their responsibility to cover payments in the event you can’t. If you fall short, it could hurt their own finances and credit rating—and it could hurt your personal relationship with your cosigner.
How will you use your loan to increase your earnings? You pay interest to a lender on the money you borrow. That money should also pay interest to you—in the form of a bigger client list or a larger, more productive practice. If you’re taking out a loan to cover expenses and keep your business running, it’s only worth your while if your business eventually becomes sustainable.
Are there better options? If you’re taking out a personal loan to cover emergency expenses, or as a fallback in case revenue decreases, it may not be the best option for you. A line of credit can cover unexpected expenses or dips in revenue just as well as a personal loan, with the added benefit that you only pay interest on the money you use.
Will you need another loan in the future? Debt you take on now will affect your ability to get credit in the future. If you have plans to finance a vehicle, qualify for a mortgage, or otherwise secure more credit somewhere down the line, it’s important to understand that a personal loan could decrease the likelihood of that happening—or at least increase the amount of time you have to wait before moving ahead.

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Ultimately, if you’re not sure whether you can afford to fund your therapy practice with a personal loan—or if you need help making plans to pay off the loan—then your best bet is to consult with a qualified accountant.

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How to pay off a personal loan

Paying off your personal loan should fit into your overall debt strategy. That strategy includes:

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Maintenance: Budgeting enough income to service your existing debts in a timely fashion.
Short-term goals: How much you aim to reduce your overall debt by within the short term (i.e. one year or less). You can meet these goals by increasing payments on credit cards, reducing personal expenses, and prioritizing debt repayment over other expenses.
Long-term goals: How much you aim to reduce your overall debt by within the long term (i.e. longer than one year). These take into account other long term financial goals like retirement savings.
A debt repayment strategy: Once you’ve decided to decrease your overall debt, you have different methods to choose from. These include paying off your smallest debts first, or prioritizing debts with the highest interest rates.

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For help managing debt, including debt from personal loans, check out How to Pay Off Debt: A Complete Guide for Therapists.

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Key takeaways:

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To qualify for a business loan, you need to have been in business for at least two years and present lengthy documentation proving your business’s profitability.
Personal loans are based on your credit score, income, and debt-to-income ratio (DTI).
Business loans typically have longer terms, higher amounts, and lower interest rates than personal loans.
In most cases, you can use a personal loan to finance business activities, although some lenders put restrictions on using personal loans to start new businesses.
Banks, credit unions, and online lenders all offer personal loans.
Before settling on a loan, prequalify with a variety of lenders and compare rates and terms.
Factor loan payments into your monthly budget so that you make payments on time and avoid hurting your credit rating.

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Interested in learning more about business loans? Check out the 4 types of business loans for therapists.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.‍
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