If you can’t seem to qualify for a small business loan but want to keep your business afloat, taking out a personal loan might be a great funding alternative.
Unlike small business loans, personal loans can’t grant you significant loan amounts. However, they can be easier to qualify for, especially if you have an excellent credit score.
Generally, small business owners consider business financing when they need the funds to help grow their business. However, there can be instances where business financing might not work out for the borrower. When that happens, some small business owners decide to get a personal loan against their finances for business use.
Personal loans can be used for almost any purpose. This means you can use the loan amount for anything you like, including covering your business needs. In addition, you can get a personal loan through banks, credit unions, or online lenders such as Creditninja low credit loans.
Lenders who offer small business loans tend to assess your business plan and knowledge in the industry before approving your loan application. On the other hand, personal loan lenders simply ensure you’ll be able to pay off the loan by assessing your personal finances and credit history for you to get approved.
Below are some pros of taking out a personal loan to fund your business needs:
A personal loan is designed for an individual borrower and not for business. However, if a small business owner requires fast access to cash, taking out a personal loan can be a good option.
Personal loan lenders tend to require less documentation and more accessible qualifications. Plus, they are quicker in making a loan decision than small business loan lenders. Depending on the lender, you may receive the loan funds a day or a few days after loan approval.
Not all small business loans can provide you with a lump sum. You might be required to submit a draw request to have your loan amount disbursed to your account periodically. To do that, you might have to present receipts, invoices, or a project budget highlighting what the funds will be used for.
On the bright side, with a personal loan, you can get access to cash in a lump sum. The loan amount will be given to you by the lender in cash or deposited into your account. This way, you won’t have to wait for a more extended period to get the total funds you applied for.
The following are the cons of using a personal loan to fund your business:
Remember that when using a personal loan to fund your business, the debt will always be under your name and not the business. And when you have more credit besides the personal loan for business use, lenders might be discouraged from extending you some credit.
In addition, if you use a personal loan for this purpose and your business is not generating enough income to repay the loan, your personal credit score might get hurt. It’s essential to know that a late or missed payment can reduce your credit score by as much as 100. This can negatively affect your future credit applications and chances of getting a low-interest rate loan.
Small business loans can provide you with funds up to $1 million. On the other hand, personal loans can only grant you $100,000 or less. Also, the loan amounts tend to vary by lender and their qualification.
Since a personal loan is under your name and not your business, getting one has no impact on your business credit score. If you want to see a movement in your business credit score, you’ll need to have credit cards and loans registered under your business name and identification number.
Owning business accounts with a positive credit history can make qualifying for small business loans with low-interest and favorable terms easier.
Using a personal loan to fund your business is only one option. There are still other funding options you can consider. However, as you try to understand these financing methods, it’s best to consider the pros and cons:
Personal loans are designed for individual borrowers. This means the lenders will only look at the borrower’s personal finances and credit history to decide on the loan approval. However, if a small business owner is looking for a funding option to grant fast access to cash, this type of loan might be a good option.