Having sufficient working capital is essential for every business. But for many business owners, taking out loans is the best way to build enough working capital, buy necessary equipment for daily operations, or cover customer orders and supplier payments.
One of the most flexible types of loans you can utilize for your business is the personal loan. While they are easily accessible and usually come with numerous benefits, it’s important to think hard and long whether or not they are the best funding option for your business.
To help you make a well-informed choice, we’ve put together the best reasons to fund your business with a personal loan:
Limited Business Financial History
Getting business loans in Jackson, Mississippi — or wherever you reside — can take time and effort if you’re only starting or your business has a limited financial history. Most lenders will require a proven track record of the company’s revenue, excellent credit history, and minimum length of the business. That’s why most start-ups often find it challenging to secure a business loan.
But, staying with the current example, your company’s financial history will not matter if you take out personal loans in Jackson MS for your business. As long as you have a good personal credit score and stable income, you can easily qualify for a personal loan.
Only Needs A Small Sum
If your business only needs a small amount, securing a business loan can be more difficult. Business loans usually come in large amounts since small loans generate less interest and cost banks the same amount of work. Although some banks may approve a small business loan, they are likely to charge higher interest rates.
A personal loan would be a great choice if your business only needs $50,000 or less. That’s the maximum amount you can get for a personal loan. However, if you need more than that to cover your business needs, you can opt for a business loan.
Lack of Collateral
Most business loans are secured, meaning you have to pledge some form of collateral to get approval. It’s among the reasons why entrepreneurs get rejected for a business loan. On the other hand, banks always feel more confident in extending a business loan with collateral since they can repossess it if you fail to repay them.
But qualifying for a personal loan doesn’t usually require any collateral. So as long as you can prove to the lender that you can make payments on time, you can get approved for a personal loan.
Quick and Flexible Financing
There’s usually minimal documentation involved in personal loans. Once you meet the lender’s requirements for personal loans, you can access your funds within a week. If you apply with an online lender, you’re likely to get the fund by the next or even the same business day.
Besides a quick approval, a personal loan for business also provides you with more flexibility. For example, most business loans can only be used toward certain expenses. But you can use a personal loan for any of your business needs, whether for marketing expenses, inventory, or other purposes.
Competitive Interest Rates
Business loans can be expensive if your business doesn’t have an established or excellent credit history. You’re more likely to acquire competitive rates and terms with a personal loan in such cases. In addition, most personal loans are available at between 3% and 36%. So if you want to reduce your interest cost, using a personal loan for your business can be a cheaper option.
However, it’s worth noting that rates may depend on the lender and your qualifications. Make sure that you have a good or excellent personal credit score to qualify for better rates. But to get the best deal, it’s always a good idea to shop around since lenders can have different rates on personal loans.
Fixed Repayment Period
Personal loans have a fixed repayment period. It’s a good thing since paying back the loan within the predetermined time frame allows you to avoid compound interest or interest on top of the original interest rate. But note that personal loans are usually short-term loans, meaning you will have to pay back the loan within 12 to 60 months.
So, before deciding to use a personal loan for your business, make sure that you have a clear path to repayment. Else, you could end up putting your personal finances at risk and doing more harm to your business’s financial health. To avoid default and additional charges, only borrow what your business needs and can afford to repay.
Choose The Best Financing For Your Business
A personal loan is an excellent tool to add cash to your business. But make sure to consider all the factors before making a deal with any lender. Note that the best financing for your business depends on its needs and goals. That’s why it’s essential to keep your options open so you can always decide what’s best for your business.
Photo Credit: Alexander Suhorucov