Starting a business is no easy task. It can be a very trying experience that can break even the strongest person. But on the other hand, it can be the most rewarding experience of your life. It just needs to be approached with a solid business plan, and some funding.
You will be starting out small, and slow, so if you do not qualify for a business loan a great way to gain some capital would be a personal loan. As with every other thing in life, no matter how good of an idea it is, something could backfire on you. It is important to keep a few things in mind, so let us touch on them and go from there.
- The first thing to keep in mind is that some loans may put a restriction on your funds, preventing you from using it for a business startup. It may seem like if you get some money that you should be able to spend it any way that you see fit, but that is not always the case. Using borrowed money to start a business is risky for you, and risky for them. If you go bankrupt you will not be able to pay back the money you borrowed, and you will not have any of the money left to give back. Basically, you will be out of money if the business fails, and the bank will be out the money they loaned you. It could be said that the amount you lost could be doubled, so some lenders will not loan you any money on a personal loan if it is going to be used to start a business.
- Another thing that you will want to keep in mind is that you need to decide when the time is right for a personal loan to float the startup costs of a new business venture. If you can get a business loan, that would be the best way to go, but there are problems with that approach. A majority of the lenders will require a year’s worth of finances for the business before they will consider giving a loan to you. A startup will obviously not have that kind of information, meaning many entrepreneurs will be denied a business loan on that premise. That is when you should get a personal loan comparison and find the one best suited for you. Get enough to get the business off the ground, plus a little extra to pay for bills until you get your brand established. Do not go crazy and get a huge loan that will take a substantial payment to get it all paid off. Get a little more than you need and that is it.
- If you have a high credit score with an excellent credit history, but do not need a hefty sum of money, you may be better off getting a personal loan. It can be easier to get and cost you less in interest. You need to remember that a bank uses credit risk scores to evaluate how much of a loan that they are willing to give if they plan to give you one at all. The requirements for a business loan are much steeper than the ones for a personal loan, so it may just be easier to go for that one, even if you can qualify for the business version.
- When you get a personal loan from a lender you are signing a contract saying that you will pay the amount, plus interest, by paying a specified number of payments at a set amount. It does not matter if your business fails, or if your partner runs off with the investment. You signed the contract for a personal loan, so your personal finances are at stake. No matter what happens to your business, you will be responsible for paying the entire amount off.
- You will have less capital when you take out a personal loan, compared to the amount that you could get with a business loan. That is why they are easier to get, among other things. Unless you have a savings account that you are able to tap into if needed. For the most part, though, you are getting a loan because you to do not have the money on hand to pay for the startup costs. The bottom line is that you will not have a huge amount available to you, so you will need to have a business plan that allows for it.
- You will have the tools and business help that you could get if you went with a business loan. Since you are getting a personal loan, you will not have access to any of the extra help that normally comes with a loan centered around a business. This may not seem like a big deal, but free advice can be worth its weight in gold. But now, you are on your own.
- The final thing that you need to keep in mind while lift your spirits back up, after the last couple of points. A personal loan will be approved quicker, and the funds will be in your hand faster. A business loan can take some time, especially if you are not already established. With a personal loan, since it is based off your personal financial situation, you could have the funds within a day or two.
That is about all that you need to remember before attempting to use a personal loan for a startup. In the end, the decision is up to you, and your lender. A personal loan can get you started when you have no other way to get funds.
It is an easier route to take, but one that has different obstacles than you could expect from a business loan. Either way, the best way to get your startup going is to get capital, and if you sit around deciding if it is the right move for you, someone else will step up and take your place.
