Starting a business in 2017 has never been easier. With a good computer and a lightning fast internet connection, how could business success not be at your fingertips? Well, it’s a lot easier said than done.
Whether you’re itching to start the business you’ve been dreaming about or you simply need some short-term assistance in helping you pay the bills, financial help will always come in handy.
The quickest answer to business funding assistance would be to apply for a personal loan. Why? Because personal loans are readily available, from small amounts to bigger amounts.
Understanding your needs
For various reasons, using a personal loan can be risky because the potential failure can leave you liable, but once you understand your needs and what exactly you’ll be using this money for, it’ll be worth it.
And as with all things, before you dive in, you need to weigh up your business and personal options. Here’s a quick breakdown on business loans: Some lenders don’t care to ask what the money will be used for, while others will immediately decline loan applications from startup entrepreneurs looking to borrow capital.
Most banks are reluctant to lend small businesses money, and make sure that when you do apply for a business loan, you need to be able to use the company’s credit and cash flow history to earn approval.
These intricate business loan applications come with strict terms and conditions, regarding how the money can be used, and you will most likely be asked to offer up collateral. 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. Personal loan applications do not ask you to post collateral in order to be approved. So, what to choose?
Here’s when it does (and doesn’t) make sense to finance your business with a personal loan.
For young business owners, getting a business loan for your new startup is nearly impossible. Which is why your only option would be to apply for a personal loan. In the beginning, there is little or no history to support your viability as a business. And banks want to see records of cash flow and profitability.
A personal loan might not sound like the ideal solution, considering that it is linked to you as a person, but the good news is that the loan payments on a personal loan tend to be a lot smaller. All you need to be able to qualify is to make sure that you have a strong credit score.
When it’s cheaper than any business loan offer
At the end of the day, you’re not applying for a loan to put yourself into deeper debt. You applied in the hopes of having some financial cushion to lean back on in times of need. Now, within saying that, you’d also want your loan rates to be low. In this case, personal loan rates are much lower.
You should always take the lowest-cost capital available, so choosing a personal loan over a business loan (if it’s cheaper) would make more financial sense.
When it’s your only option
Cheap is good, but only if you can actually repay those payments. When it comes to paying back a personal loan, you need to be able to repay these amounts, otherwise it will have a heavy impact on your personal credit score.
If you don’t have a clear idea on how the loan will be paid off, take a step back and rather try to save the capital needed.
Try working towards a future where you rely more on your business financials and less on your own.
Make your decision
Depending on where you’re currently sitting in the life-cycle of your business, there are always different options to accommodate your needs. Be it business financing, loans from family and friends, property equity or more, nothing seems to have the same flexibility as personal loans do.
Another comforting thing about personal loans is that whenever you use your own money, you tend to be more careful with your expenses and how you run your business. This could be a good thing, considering that you will be paying that money back in the long run.
Whatever decision you end up making, be sure to do your research before committing to any lender. Make the most of that helping hand. It’s a payment you’ll be making for a long time.
Source: Entrepreneur Magazine, SA