Because of the many available ways of funding your business, settling on one choice can be overwhelming, especially because many loan facilities have various business benefits and disadvantages.
Some businesses can benefit from personal loans, while others might need a more tailor-made loan facility. This article highlights four key things you need to know about using personal loans to fund your business.
You can use a personal loan as business capital
Personal loans are a good option if you need to fund your business and want to take advantage of faster loan approval. Personal loans often have easy and faster approvals, with many not having collateral requirements.
Personal loans are also helpful if you need quick access to funds; in most cases, you’ll get the personal loan deposited right into your bank account within 24 hours of loan approval.
Therefore, you can use a personal loan for just about anything related to running a business: equipment purchases (for example, computers or printers), inventory purchases (such as raw materials), marketing campaigns, or advertising costs–anything.
Compare plans and offerings.
Personal loans are unsecured, which means no collateral. Therefore, if you default on the loan, your lender has no legal claim to your assets (like a house or car). Because they are riskier for the lender, unsecured loans are usually more expensive than secured ones.
To get the best personal loan offers, here are things you should consider;
- The interest rate
This is a big one! If you have a good credit score/history and borrow money from a reputable lender, the best way to save money on interest is by getting a lower rate. As with any financial product or service, you must compare rates and terms before choosing one lender.
You can make settling on one personal loan lender easier by comparing different providers using the iselect unsecured personal loans calculator that compares personal loans from different creditors.
- Repayment options are available with each plan (or even just one specific one).
Some lenders allow borrowers flexibility in paying back their loans; others require monthly payments based on a set schedule until you clear the principal and interest in full.
You may also have options for making extra payments toward your principal balance throughout the life of your loan–these can help reduce how much total interest gets charged against it.
Personal loans have shorter terms than business loans
Personal loans generally have a shorter repayment period than business loans. Personal loan terms can range from 3 to 5 years, while business loans can have a ten-plus years repayment period depending on your financial situation and what your lender is willing to offer you.
If you plan on using a personal loan to fund your business, remember that this isn’t necessarily an endless source of funding; you may need to pay off your loan before you can get another one.
Personal loans also tend to have lower interest rates than credit cards but higher than some business loans. There may be better options than a personal loan if you want the best deal to finance your business–like a microloan.
However, if your business needs funding now and you don’t want to wait for other forms of financing, a personal loan might be a good way to fund your business.
You may need a cosigner for a personal loan
Getting a personal loan with favorable interest terms can be challenging when you do not have a good credit score. If you’re applying for a business loan, it’s even more important that your lender sees you’re a responsible person who will pay back what they borrow.
Sometimes, lenders will require a co-signer who agrees to be responsible for your loan if you don’t pay it back on time or in whole. It could be a friend or someone from work who has good credit and wants to help fund your business.
In conclusion, the good news is that you don’t need to be a millionaire or have a good credit score to get a personal loan. The bad news is that plenty of lenders out there will charge you high-interest rates and fees when you want a personal loan but don’t have the best credit score or history.
That’s why you should remember the four things discussed in this blog, especially comparing personal loan lenders using a personal loan calculator like the one provided by iSelect. If you keep these four things in mind, you’ll find an affordable personal loan that fits your budget and needs.