Pros And Cons of Using Personal Loans for Business Purchases

pros-and-cons-of-taking-a-personal-loan-for-business

Becoming an entrepreneur can be a costly business! There are often numerous expenses to cover like buying a car, renting an office, hiring employees and so on. Funding your startup is one of the biggest challenges. Do you go the personal loan route or not? Here we are going to share a few pros and cons of taking a personal loan to start a small business.


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How to Start Your Own Small Business and Stay Afloat

If you are going to start a small business, you need to be ready to take the necessary steps to keep it afloat. Some tips on how to start and stay afloat include:

Look at what funding you do need

It often happens that there is no money to launch a startup to cover the initial expenses. In this case, it might be necessary to take out a loan. Small loans are an opportunity for those who need investment right now or have no time to seek out investors. Taking a personal loan does not usually require collateral to secure your obligation but make sure to clarify other details before you apply for a business loan from a reputable lender.

Try to keep those costs down

When starting a new venture with a risky idea, it is crucial to spend as little money as possible. Don't be tempted to take on heavy costs like an office lease if you can use flexible co-working spaces instead. 


Recommended reading: 5 Tips for Managing Small Business Finances


Be flexible

Try to stay creative and flexible. When trying to grow your business, you will face a lot of difficulties and challenges. To keep your business afloat and stay faithful to your long-term commitments, you may need to change directions and adapt to emerging market trends or pivot to new spaces that you hadn't considered when you started.

Hire wisely

If you don’t have much money at the beginning, you will need to outsource some roles. Websites for freelancers or job boards can help you find specialists that are willing to maybe work part time to start with until you get the business up and running. 

Pros of Using Personal Loans for Business Purchases

A personal loan allows you to pay for whatever things your business requires. Below are some of the advantages of taking out a personal loan to cover small business purchases:

  • Quick application process. Compared to business loans, it takes one-two business days to go through the process of applying for a personal loan from for your small business;
  • Easy acceptance. Most online lenders are startup-friendly. The reason why a personal loan is easier to get is that the borrower is personally taking responsibility for it which means that your business does not need to meet the whole list of requirements like a business plan, income statement, financial projection and so on;
  • No collateral. Whether you will be issued a personal loan with or without collateral depends on your relationship with the lender. Personal loans without collateral are called “unsecured”. While the majority of banks offer “secured” business loans, online lenders have lower requirements for applicants. However, you can put your business equipment and property as collateral to secure your personal loan;
  • Fewer penalties. The thing is lenders prefer clients who are not able to pay off the loan before the expiration of the payment period. On the other hand, they may be a bit afraid to issue personal loans to clients with bad credit history. Unlike a business loan, a personal loan does not come with the penalty for paying down your balance faster.

Recommended reading: Alternative Financing Options For SMEs (Other Than Your Bank)


Cons of Using Personal Loans for Business Purchases

There are some disadvantages of taking personal loans for a small business like low amounts and repayment terms, personal liability and other.

  • Low amounts. When taking a business loan, you can borrow more money, however, personal loans are usually much lower and more limited. 
  • Repayment terms. Terms for repayment can be harder for personal than business loans.
  • Personal liability. If you decide to close the business, an unpaid personal loan means you are the only person responsible for paying it back in full amount according to the loan agreement.

Personal loans for small businesses can offer a way to cover initial business costs but as with any source of funding, you need to consider the pros and cons for you and your business. 

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Sunday, 17 November 2019
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