One of the most challenging things about running your own business is finding the right funding. It is because insufficient funding is a roadblock to success. Many entrepreneurs decide to get a loan to fund their business especially during the initial stage. It is a decision with its own risk regardless how common it is in business world. What about personal loan? Is it safe to take out personal loans to fund your business?
Using personal loans to fund your business
It is possible that you use personal loans to fund your business especially if you have a clear path and understand the risks. If compared to business loan, personal business loan has higher risks. However, personal loan is easier to get without too many requirements involved. Some small business owners decide to take personal loans when they are unable to obtain business loan.
Finding the right lenders
Be more selective and careful with the choice of lenders. You can get personal business loan from banks, credit union, or online lenders. Or, you can also get it from a loan marketplace or crowdfunding website. Many of these lenders provide online applications that only take few minutes to complete. Be mindful in choosing the lender and consider many factors before choosing one such as fixed interest rates, fixed loan terms, etc.
Personal business loan is easy to get
One of the most common reasons many small business owners use personal loan to fund their business is because it is easier to get. The lenders only look at your personal credit score, income, as well as debt-to-income ratio. They don’t pay attention to the business you are doing. They don’t even need to know your intention with the money. If you are credit-worthy, you will be approved. This is different from how business loan works. The health of the business is the main thing the lenders pay attention to.
Lower interest rates
Another good thing about personal loan is lower interest rates compared to business loan. If you have high credit score, a personal loan can be a cheaper solution for your financial problems. Meanwhile, the terms of business loans always revolves around your personal credit score and your business’s financial health. It will be harder to get business loan if you have struggled in the past.
Flexible use of personal loans
Personal loan is also more flexible in term of use. The lenders don’t care much about what the money you are going to use for. As long as you can pay it back, then the rest don’t matter. Most lenders don’t have tight restriction with the money use. Hence, you have the freedom to do everything you need with the money.
However, be mindful of the risks of taking personal loans as well. For example, taking personal loan means you already mix business with personal life. The loans maximums are also lower. Not to mention that you need a personal guarantee which means putting your asset at risk.