ack of funding is a primary challenge for business owners and one of the main reasons small businesses fail, according to the . Entrepreneurs may face barriers to acquiring funds like bad credit and limited cash flow that can exclude them from traditional financing options such as small business loans.
While business loans can offer a lower annual percentage rate (APR) and higher loan amounts, they aren鈥檛 the only financing option you can leverage to support your business. You can get a personal loan for business and use the funds to finance your business expenses. However, your lender鈥檚 terms and conditions must allow you to use the personal loan for business purposes. Then, with your personal loan, you may purchase inventory, use it as working capital, open a new branch, or use it for other commercial purposes that support your business.
What is a personal loan?
When you borrow money from a bank, online lender, credit union, or any other financial institution for personal use, it鈥檚 called a personal loan. Typically, borrowers take out personal loans to finance private affairs such as:
- Weddings
- Medical bills
- Home renovation projects
- Moving costs
- Emergency expenses
- And other large purchases like household appliances
Thanks to their flexible qualification standards, personal loans are easier to access than business loans. To approve personal loans, most lenders require:
- Proof of income, such as pay stubs
- A suitable credit score and income
- Collateral if applying for a secured personal loan
- Proof of identity and address
- Completed loan application forms (online or in-person)
These requirements are generally things you can furnish a lender with immediately. Conversely, business loan qualification requirements are more demanding and can take more time to gather. For example, lenders will require income tax returns, profit and loss statements, business licenses, and other requisite documents.
Most personal loans are unsecured, meaning lenders don鈥檛 ask you for collateral. If you default or fail to pay your loan, you鈥檒l hurt your credit score, and other lenders will be reluctant to offer you a loan in the future. The lender may also engage a debt collector to recover payment from you through wage garnishment, a , or other legal means. In the case of a secured personal loan, the lender will seize the asset you put up as collateral in the event of non-payment.
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Can I get a personal loan to start a business?
You can get and use a personal loan for business financing if your lender鈥檚 terms and conditions allow you to use the funds for commercial purposes. Most lenders don鈥檛 restrict borrowers from channeling a personal loan for business use, but some do. So, you must read and understand the lender鈥檚 loan usage rules before applying for a personal loan with which you intend to start a business.
If a lender doesn鈥檛 allow borrowers to use personal loans for commercial purposes, you鈥檒l violate their loan usage terms if you use the loan funds to start a business. In that case, the lender may hike your loan interest rate, require you to pay the entire loan amount sooner, or reduce your loan period.
Being frank with a lender regarding your loan purpose is advisable so you both start on the same page. You should also compare interest rates from different lenders and prequalify to ensure you get the best market rates available.
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What are the different types of personal loans?
Financial institutions offer borrowers many types of personal loans that are structured differently for specific purposes. Some types of personal loans, like , may not help you start a business. Explore the personal loans you can use that can help you fund a new business.
Co-signed and joint personal loans
When you have bad credit, most lenders won鈥檛 approve your loan unless you have a co-signer who has good credit standing. Your co-signer may be a friend or family member with a good credit score who agrees to be liable for your loan repayments if you default. Your co-signer acts as a guarantor and doesn鈥檛 access the loan amount.
Joint personal loans involve two borrowers who have good credit. If you take a joint loan, you and your partner can access the loan funds and are liable for payments. Joint and co-signed loans are an excellent option when you don鈥檛 qualify for a personal loan alone or when starting a business with a partner.
Personal line of credit
A personal line of credit works like a credit card鈥攍enders allow you to borrow money as you need to up to a maximum amount. This is instead of offering you one lump sum loan disbursement. With a personal line of credit, you only pay interest on the amount you borrow. Suppose you only need a small amount of capital initially for your business but figure you鈥檒l need more funds in the future. In that case, you may consider a personal line of credit.
Fixed and variable rate loans
With a fixed-rate personal loan, you pay a fixed interest rate throughout the loan period. A variable-rate personal loan charges you fluctuating interest rates based on the going interest rates. Fixed-rate loans are ideal when borrowing large sums with a long repayment period. Variable-rate loans work best when you鈥檙e borrowing money for a short period.
Secured and unsecured personal loans
Secured loans need collateral, while unsecured loans are collateral-free. If you鈥檙e willing to risk assets like your property, car, or home, go for a secured personal loan. You鈥檒l get lower interest rates and higher loan amounts since the lender has more security.
Unsecured personal loans charge a higher APR as lenders take on higher risks. Because of the low entry barrier, unsecured personal loans are among the most convenient funding sources for new businesses. 聽
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Is a personal loan for business worth it?
Before you apply for a personal loan, weigh the benefits and drawbacks and ensure it鈥檒l serve your business needs effectively.
The top benefits of a personal business loan include:
- Fixed payments help you organize your business finances
- Easy qualification and fast funding so you can set up your business swiftly
- Lower APR rates compared to other funding solutions like credit cards
- You enjoy competitive interest rates if you have excellent personal credit
The drawbacks include:
- You pay higher interest rates if you have poor personal credit
- You risk your personal credit if your business fails to take off and you miss payments
- The maximum loan amounts may be insufficient to start a business (most lenders' ranges from 聽$50,000 to $100,000)
- Repaying your personal business loan on time doesn鈥檛 help your business credit score
Getting a personal loan for starting a business can be worth it if:
- You can鈥檛 qualify for a business loan like a Small Business Administration (SBA) loan
- You can start your business with little money
- You need quick funding to capitalize on a business opportunity
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What are the alternatives?
Fortunately, other funding options beyond personal loans exist for starting a new business. These include:
- Self-funding
- Venture capital
- Crowdfunding
- Government grants
- Merchant cash advances
- Business loans (if you qualify)
Deciding the best financing option for your new business can be challenging. Comparing different lenders can be an uphill task, especially when you don鈥檛 know the options you qualify for and those you do. That鈥檚 why you need a solution like 海角爆料 Funding.
With 海角爆料鈥檚 small business financing option, you can access up to $75,000 in instant working capitalif you qualify. Better yet, you can apply online for 海角爆料 Funding in under 10 minutes and get your approved funds in your 海角爆料 checking account to use as you please.
and get your business up and running.
海角爆料. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. 海角爆料. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.
The Merchant Cash Advance is provided by 海角爆料 Funding LLC, PO Box 311092, Miami, FL 33231. 海角爆料 is the marketing name for 海角爆料. and its subsidiaries and affiliates. 海角爆料 Funding LLC is a wholly owned subsidiary of 海角爆料. Credit and Merchant Cash Advance products and services are offered by 海角爆料 Funding LLC. The information and materials contained on this website - and the terms and conditions of the access to and use of such information and materials - are subject to change without notice. Not all products and services are available in all geographic areas. Your eligibility for particular products and services is subject to final 海角爆料 determination and acceptance.
海角爆料 is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.
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