Should You be Using a Personal Loan to Fund a BusinessWhen it comes to loans, the chances are that you already know there are dozens of different options out there. When it comes to financing your business, of course, you might have only focused on one area – the area of business loans. Of course, this makes a lot of sense. Small business loans are designed to expand business opportunities for budding entrepreneurs. The full structure of the loan is designed with business owners in mind.
Of course, you don’t want to take a business loan for granted as being the only source of finance that you can get. The truth is that if you’re willing to be a little creative, there are other options out there that could help you to enjoy more cash for your business. For instance, have you ever thought about using a personal loan for your business expenses?
What’s the Problem with Business Loans?
A business loan is a traditional financial product used to serve business owners who want to get their hands on some extra cash. This cash could be necessary because they need to fix a problem in their company, grow in a certain direction, or simply improve their cash flow. Unfortunately, as finances have become tighter around the world, some big banks have begun to stop handing credit out to small businesses – which means that some companies are being left out in the cold.
Alternative lending solutions allowed people to consider different options when it came to accessing finance for people with less than perfect credit. Business loans require a great deal of time and effort to secure. Regardless of whether you’re going for something from a bank or a building society, you could find that you’re waiting months for your loan to go through.
Of course, with a business loan, the main focus will always be on your business – and that’s why the process of applying for and receiving a loan takes so much time. Businesses have a lot of different moving parts to think about – and your lender will want to feel confident that you’re capable of paying them back.
What About Personal Loans?
Unlike business loans, personal loans are typically reserved for personal matters. For instance, you might take a personal loan out when you want to pay for a vacation or a home repair. On the other hand, you might be financing a wedding, or consolidating some of your credit card debts – whatever the reason, a personal loan is an unsecured loan that is given to you – not your business.
Personal loans often come in smaller amounts and don’t require any collateral. They also focus on looking at the individual lender, rather than the business on a whole. This can often work in your favor if you’ve got great credit. After all, if you’re looking for a business loan and you don’t have any history behind your business belt, then you’re going to have some problems.
A personal loan could easily be the best move for you if you haven’t started up your business yet, or if your financials and revenue don’t meet the minimums required to help you get the cash you need from a business lender. If you don’t have the collateral required to get a business loan, or if you’re in a business industry that’s a little risky, then you’re going to struggle to get the help you need from a traditional business loan lender.
Business Loans Vs Personal LoansOf course, it’s worth remembering if you’re thinking about getting a personal loan instead of a business loan, that personal loans typically require good personal financials and credit scores. There’s no way that you can escape those standards unfortunately. You just have to find a way to play to your strengths wherever possible.
Something else you should be aware out when you’re thinking of using a personal loan for business purposes, is that you could be mixing finances. When you take out a personal loan for your business, your mingling your personal and business accounts. This isn’t always a problem for early-stage small businesses but you’ll need to make sure that you keep track of both things separately, and start building business credit wherever you can in the future.
Another thing to keep in mind is that certain types of personal loans will have additional fees to think about. If you choose to take out a loan for £5,000, and there’s a closing fee of $250, then you’ll only see about £4,750 in your account, but you’ll have to pay interest back on the full amount of £5,000. At the end of the day, if you’re a young and upcoming business and you can’t qualify for a business loan, then a personal loan might be worth your consideration.