While it is more customary for an enterprise to be funded by a business loan, this is not always the case. Sometimes, a business owner may opt for a different approach and take a personal loan in order to finance a project. There are many differences between personal and business loans, the greatest onesbeing the payment terms and the amount of money you can acquire. Nonetheless, a startup usually doesn’t need a multi-million-dollar loan which is why only 34 percent of small businesses go with a business loan. With this in mind, here are a few things you should know about personal loans and whether or not they are a good idea for your business.
Hot To Qualify?
The first thing you need to think about are your prospects of qualifying for a personal loan in the first place. The most common personal loan goes from $3,000 to $50,000, while some may go as high as $100,000. The amount you apply for will affect the interest rate you will have to pay, which is why you need to be quite realistic about your needs. The first thing that a lender (a bank, a credit union, etc.) will look for is your ability to repay. This is where you will be able to use your business indirectly since your personal income will be one of the key features that a lender is going to look at.
Much Less Paperwork
Another great advantage of going with a personal instead of a business loan is the fact that there is much less paperwork involved. Sure, you may still be asked to submit your income and any collateral that a lender can use as a guarantee, but apart from that, there won’t be a lot of tedious bureaucracy to deal with. With a business loan, you would probably have to submit a detailed business plan, whose preparation can be an arduous matter indeed.
In some cases, however, none of this will be required. Here, a lender will only ask about your identity, but this kind of a loan has a downside, as well. Seeing how there is no guarantee of your creditworthiness, this loan will most likely come at a somewhat higher interest rate. Nonetheless, if you are in need of some quick capital injection, this is probably your safest choice.
For example, in order to apply for a loan at NSW Mortgage Corp, all you would need to submit are the loan amount, your name, the type of the loan, whether or not you own or are paying off a real estate, and contact information (phone number and email). If you get approved, you will be notified in no time and will be able to get the needed money soon after.
When Is a Personal Loan Not a Good Idea?
Well, if you have a good credit rating, a valuable collateral and a well-conceived business plan, it is usually much better for you to apply for a business loan. One of the advantages of good business loans is that they tend to have more favorable payment terms. Still, businesses in their infancy, still struggling with their budget may not be able to even qualify for high-profile loans such as SBA in the first place. All in all, your choice of the type of loan will depend on your current financial status.
So, to wrap things up, is a personal loan a good idea for your business? Well, it depends. First, it depends on the amount you need, the time you have and your ability to repay it over a short time-span. Second, it depends on whether you could apply for a favorable business loan in the first place. Finally, in order to get a worthy business loan, you are expected to already have a stellar record track, which on its own isn’t a small matter. Ultimately, choose wisely since the future of your company may depend on this decision.