Many people have always dreamt of leaving their 9 to 5 jobs and starting their own business.
With their own company, they will be their own bosses. In addition, they will be much happier since they will be doing something they really like every day, and they will be able to manage their time more efficiently as well.
For most of these people, their dream will remain a dream because of one important thing: the lack of capital. Although there are many possible sources of funding today, many budding entrepreneurs are hesitant to apply for them due to the many requirements they have to submit and processes they need to go through.
Funding Your First Business With a Personal Loan
Although a business loan is the most recommended type of funding up-and-coming entrepreneurs should get to turn their dream into reality, a personal loan can also be a great alternative.
A personal loan offers certain advantages over a business loan because of the following:
- There are numerous lenders that offer this type of loan including commercial and rural banks, lending agencies, and online lending companies.
- Lenders do not require you to submit a lot of supporting documents or requirements.
- Payments will be made in installments at an amount you can choose and are comfortable with.
- In case of late payments, your business won’t be affected.
Getting a personal loan is also a smart course of action for all up-and-coming business owners who:
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Require only a small amount of startup funds
Many lenders are apprehensive about lending money to startups and small businesses that are asking for a small loan amount. This is because the cost and effort of setting up a loan for a small amount are typically the same as that of a larger one but is less profitable for the lender.
Because of this, budding entrepreneurs will have a hard time securing a business loan for a small amount or wait really long before it will get approved.
A personal loan, on the other hand, is easier and faster to secure since it doesn’t call for many requirements. As long as you have a positive credit score, your application for a small loan amount will be most likely approved. This is because your application won’t require any type of business analysis.
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Do not have any assets
Personal loans are considered unsecured loans and, therefore, do not require any form of collateral.
Most lenders will be happy to grant funds to startup owners who have a good credit history. They prefer lending the money against an individual rather than a small business. This is because lenders are usually more confident about getting their money back through personal loans.
Is a Personal Loan the Best Option for Funding Your New Business?
A personal loan is a great option for funding a new business especially if you don’t have any assets and need only a small amount. When you apply for this type of loan, your lender will only check and evaluate your credit score and history and not your business that may not have any credentials just yet.
In addition, the APR and interest rates of personal loans are often lower than those for business loans which will make it easier for you to pay back your loan every month.
However, before applying for this type of funding, you have to be sure that the bank or lending agency does not explicitly prohibit using the personal loan to start your own business. Many lenders do not have any issues with this but there are some that do.
As such, do some research before choosing your lender. Request for a copy of the loan terms and conditions and direct your questions to a bank or lending agency representative just to be sure.
And if you will be allowed to use your personal loan to fund your new business but your lender will grant you a smaller amount than the one you need, there are other ways you can self-fund your venture. These can come in the form of credit cards and loans from friends and family.
The bottom line is, yes, you can use a personal loan to start your own business. But make sure your lender know that this is your primary reason for getting a loan.
By talking to a loan specialist, you will know if this is the best option for you. He or she may recommend other products that can help you get on the right track to becoming a successful entrepreneur.
