All self-starter entrepreneurs need a little helping hand to get off the ground, but is a personal loan for business funding a smart idea? Find out here…
For self-employed individuals, a personal loan for business expenses is a common arrangement. That said, before moving forward, you've got to understand the advantages and disadvantages of this brand of loan.
Join us, today, as we break down the pros and cons of using a personal loan to take care of your business expenses.
A Personal Loan for Business Expenses: Is It a Good Idea?
Ultimately, any form of business loan is an opportunity to finance your dreams. It really is up to you to prioritize better business functions, using your loan and financing options like Bonsai Finance to get started.
Pros
A personal loan to start a business is actually easier for you to qualify for as a business owner.
Self-employed professionals tend to have a harder time getting a business loan, especially in the beginning when they need it most. The terms are often more favorable with a personal loan, with interest rates as low as 4.99% in some cases.
Loans will also tend to disburse more quickly than a small business loan, often processing in a matter of days rather than weeks or months. When you need funds quickly, as is often the case with new businesses, this has a clear advantage.
Finally, there's also no collateral required when it comes to the personal loan business. A business loan will require that you put down assets to a certain value in order to protect the loan itself.
Personal loans, as a general guideline, aren't secured. They don't require collateral, and lenders can't seize your assets if you go delinquent on your loan. The only thing that will happen is that you may damage your credit score.
Cons
Of course, it's not like damaging your own personal credit score is a small problem. Putting your credit on the line like this means you run the risk of not being able to take out more in the future. A low score or history of late payments is one thing. Taking out a loan and raising your debt-to-income ratio, which can make it difficult to qualify for a mortgage or car loan, is another.
Loan limits are another factor to keep in mind. Personal loans have lower limits than small business loans, and if you try to run your business on one, you'll have to keep some tight purse strings.
A personal loan to business finance arrangement may not always carry those super-low interest rates we mentioned. With a subpar credit score from your side, many lenders may try to justify sky-high interest rates, which will cost you in the long run.
Expenses On A Personal Business Loan
As a self-employed business person, your business is priority number one. Whether you use a personal or business loan to finance it, what's important is that you stay aware of your finances, interest rates, and limits. And, when you take all of these into account, a personal loan for business expenses opens up a lot of great avenues for self-employed business people.
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