Are you planning to start a business but have your plan stalled due to the classic issue of financing? Well, you are not alone. Funding is one of the main issues starting up, and quite often, you need to be creative in securing a funding source. One of creative funding sources some entrepreneurs tap into is personal loan.
When you are considering taking a personal loan, you need to find the right lender, in term of reputation and competitiveness of the offer.
Is taking a personal loan a good idea?
I started my first business using personal loans, and I all I can say is the loans have escaped me from the hassles and paperwork involved in applying for a business loan. And I am not the only way it seems: 16 percent of people take a personal loan for business purposes.
Personal loans make a great financing option for your startup for two major reasons:
1. It’s practical
Personal loans are some of the quickest way an entrepreneur can gain access to funding for his/her startup. Unlike the conventional business loan’s lengthy application approval process, you can get approval for your personal loan application within hours.
2. It’s easy to access
It’s a well-known fact that many banks are reluctant to lend to startups. It’s very much challenging, really – you need to present your business plan and you need to work hard to convince banks that your startups will be successful (and we also know that 90% startups fail for one reason or another)
When considering creative funding options for your startup, always be sure that you understand the pros and cons of every option; this also holds true for personal loans.
If you have decided that you will take the personal loan route, before you apply for one, please consider these tips:
1. Shop around for the best rates from reputable lenders
Just like when you are taking any type of loans, you need to shop around for the best rates. Also make use of the available personal loan calculator to learn whether you can afford the loan repayment plus the interest rate.
2. You don’t need to explain yourself
You shouldn’t say to your bank that you take a personal loan for business purposes! Otherwise, you will be directed to the business lending services. Taking a personal loan doesn’t require you to explain the usage – the lender’s primary interest is on your ability to pay the loan plus interest in time.
3. Don’t borrow what you can’t repay!
This is the most important tip of all: You shall not borrow what you can’t repay later. I understand that starting up a business is risky; however, you need to be sure that you don’t take personal loans for granted. Remember, even though your business failed, you still need to repay your loan.
Disclaimer: This post is for informational purpose only; for advice, please consult with business financing specialists.