Somewhere down the line of owning a business, you might need some external financing to keep your business afloat or grow your business. You have tons of business financing options to choose from, and the one you settle for depends on your situation.
While most people use SBA loans or accounts receivables to finance their businesses, some have resorted to personal loans for their financing. In this post, we’ll address whether taking out a personal loan to finance your business is a feasible idea.
Should You Include Personal Loans Among Your Business Financing Options?
Most personal lenders will give you a personal loan for whatever reason as long as you can pay it back. However, some lenders might have strict guidelines on how you can use the money they lend you. So if you want to finance your business with a personal loan, your first task is finding the right lender.
You don’t need to have any collateral for personal loans, which makes it an attractive option for most business owners. However, the lack of security limits personal loans to only small amounts, which may not be sufficient for your needs.
Pros of Financing Your Business with a Personal Loan
There are many reasons why you should consider a personal loan for financing your business. Here are a few benefits of personal loans for business.
As mentioned earlier, you can use a personal loan for various purposes. It’s unlike mortgage loans or equipment financing and other financing options that have restrictions on how you can use the money. That means you can use personal loans for whatever business reasons, including expansion and even paying state fees.
Easier to Qualify
It’s easy to get a personal loan from a lender than a business loan from a financial institution. A personal loan lender only looks at your finances and credit history to qualify for the loan. A business loan is much more complicated with tons of requirements.
This ease of qualification makes personal loans an excellent choice for small businesses that may not qualify for other financing options.
If your credit score is excellent, you can get a low annual percentage rate. If you’re lucky, you can get low APRs of seven or even five percent.
For other financing options, you may have to pay interest rates as high as 20 percent.
Cons of a Personal Loan for Business
Borrowing a personal loan for your business isn’t without its downsides. Here are a few cons of personal business loans.
Small Amounts– You can’t compare the amounts you can borrow for a personal loan to that of an actual business loan. So you might not get enough financing for your business if you get a small loan amount.
Risks Your Personal Credit– Your risk damaging your credit score if you don’t repay the loan in time
Not tax-deductible– The interest from personal loans isn’t tax-deductible. Other financing options may have some form of tax relief.
Should You Get a Personal Loan for Your Business?
There’s no right answer to this question because it depends on your situation. However, we hope you’re better placed to make a decision now that you know all you need to know about personal loans for business. If a personal loan doesn’t work for you, remember there are plenty of other business financing options you could consider.
Remember to take your time when picking a lender for a personal loan. In the meantime, you can check out other pieces on the site for more informative reads.