The quick answer to this is YES, it can!
For someone hoping to start a small business today, lots of hurdles could possibly limit the actualization of the dream. Chief among the likeliest detriments, apparently, is the lack of adequate funding to kick-start the business.
See, almost all the mainstream financial institutions never bother to finance a startup. They will ask for a long list of requirements, some of whom being unnecessary or beyond the reach of a strong-willed entrepreneur. And so, the only alternative would be for the business person to fund the business using a personal loan.
What exactly is a Personal loan?
There’s this kind of loan whose popularity is growing by the day, all because it’s issued to offset an emergency that’s personal and understandable. Basically, borrowers get the loan for simple home improvement, to service their cars or pretty much pay off a debt. It is a fixed interest loan, issued almost instantly and without any much paperwork.
Providers could be anyone, from an ordinary brick-and-mortar bank, a credit union or an online lender like King of Kash. The loan isn’t secured against any asset, which essentially means the repayment period can be quite short and tight. All a person would need is to indicate a fixed amount to be repaid regularly and choose how long it would take to repay it all.
A Personal Loan to fund a new business is a great decision
But just because it’s a loan you often use to pay off a quick fix doesn’t mean you can’t use it this time round to finance a new business. Many people have used it in their businesses and they are doing quite good.
This loan rides on the following benefits:
- It’s easy to qualify for a personal loan
After knocking every lending facility and getting no financial backing, the last thing you would pray for is getting someone eager to fund you without asking questions. And that is where a personal loan provider comes in.
Getting accepted is almost automatic and, so long as you maintain an impressive credit record, the lender will keep financing your business until stands on its own. You must be above 18 years old with a remarkable credit score and permanently residing in the country.
- Freedom to use the money on whatever you see fit
The fact that this loan is issued directly to the individual who is interested in starting a business is impressive. You, who applied for it, are responsible for which aspect of the business the money goes to and how wise it is used. Whether you channel the whole chunk to marketing it or you take a fraction and use to pay for the premises. And you won’t be answerable to anyone, provided the loan is spent wisely.
- Comes with low Annual Percentage Rates (APRs)
Unlike credit card loans, personal loans are attractive for business because of their comparatively lower APRs. With or without an excellent credit limit, this benefit invariably means you will save a huge amount throughout the life of the money borrowed.
Sometimes, it could be as low as 5.99% or 6.99% which is a pretty good deal compared to the ordinary online loans that do start from 10.99%. Also, the fact that it is going straight to an investment venture can give you the confidence that repaying it back will not be impossible.
- Flexible repayment schedule
It’s almost natural of personal loans to be repaid once per month. And it is this attribute that seemingly favors business owners as it gives them adequate time to plan repayment well. Weekly repayment schedules that are associated with other loan types can be hectic and overwhelming.
But there’s a catch!
It is important to mention that, even with these benefits, personal loans are usually issued according to a number of factors, including the loan applicant’s credit score. They will assess your level of income, how much amount you are seeking and how you will repay it.
Also, it is often unwise to rely on a personal loan alone when starting a business. This is because; this amount is usually awarded in smaller amounts and perhaps won’t be adequate enough to get the business rolling. And even if it does, repayment might not be a guarantee since the business could take a while before profits start to trickle.
But why use a personal loan when a business loan is ideal?
Traditionally, the best loan alternatives for someone eager to start a business would be seeking a hand from family and friends. About 40% of all ordinary startups are financed this way. And it’s because, unlike a fully-fledged lender, friends would be willing to wait until the business breaks even so that they request their money back.
- The idea of going for a business loan isn’t an exciting one
The problem with almost every business loan provider is their rigidity towards financing humble businesses. They will advise on choosing a business-tailored loan instead of a personal loan.
For your business loan to be approved, lots of hurdles will stand on your way. One of them is proof that indeed it is a legally operating business, capable of repaying the money when it’s due. Of course, you will also have to give collateral or security against the amount asked for. And for someone who is barely starting up, maybe there would be no security against the loan, which will force the entrepreneur to abandon the business.
- The often fancy financing an already existing business
If at all, they fund the business, then they will be willing to fund an enterprise which has been running and has started to stabilize. In fact, if it has been operating for a couple of years and is already making profits, and all the paperwork is correct, then they will not hesitate to fund you. This effectively locks out a startup or a business that might have not started realizing any profits.
- Lastly, business loans are usually a massive chunk of money
There’s no problem with getting a handsome amount in funding. But when the business only needs a little amount, then applying for what’s in excess of the actual amount it needs is costly. Remember, maybe you just needed a little amount to top up on your capital so that the business starts.
Where to Find the Right Lender
Clearly, choosing a personal loan can be a novel idea provided it’s well thought out and the lender agrees to it. This loan depends on several factors, key among them being your credit score. In some rare occasions, the lender may ask for security, although it is not something that’s always mandatory.
Basically, what the lender ought to know is what the purpose of the loan is. Therefore, try to be honest and upfront with the lender, explicitly explaining what you require the loan for and how you plan to repay it back. If you lie and they eventually find out, you might be blacklisted from future loans.
These are the types of personal loan providers today:
Banks and credit unions: it is expected of any bank today to have a personal loan given how fashionable this type of loan is. For most of them, the easiest way to give someone a personal loan is by checking on their most recent financial activity.
In most cases, however, the whole application process happens online, via an app where a computerized system approves the amount. Credit unions follow the same procedure too, although they base their reason to approve or decline on a person’s credit history.
Online lenders: the convenience of accessing almost everything online today has seeming forced all the non-conventional personal loan providers to provide their clients with mobile apps. And for a majority of clients, online lenders are, by far, the best options.
They make it easy to access the loan and still offer probably the most reduced rates of interest. With a lender like King of Kash, one only needs to check the lender’s rate, complete the application process and get the funds.
Alternatives to Personal Loans
Aside from a business loan, there are a couple of other alternative ways of funding a new business when you are denied a personal loan. They include:
- Investors – this includes pitching to both angel investors and venture capital investors. If your idea is exciting and will appeal to them, rest assured it will be financed swiftly.
- Government grants – there are several government-backed programs that fund startups without asking for too many requirements.
- Credit card loans – they are quite popular and can suit the business’ need for quick funds as well.
- Crowdfund – the internet is an awesome place to crowdfund. You will need to use the right platforms and convince the public that whatever they will contribute, however little, will go towards getting the business started.
So, Can a Personal Loan Be Used for Business Purposes as Well?
Yes, it is absolutely possible to fund a business using a personal loan. But this option is subject to lots of considerations, including your credit score and how much you need. And so, before you choose any particular personal loan provider, make sure you think critically about it.