You have a great business idea that is a quick way to make money, but you need cash to get started. Maybe you have already tried finding friends and family who are willing to invest in your business, or you have sold all the personal possession you can in order to raise money. Whatever the case, you just cannot seem to come up with enough money to cover your startup costs. For entrepreneurial ventures that small business loans do not cover, you might want to consider getting a personal loan.
Advantages of Getting a Personal Loan
One upside of getting a personal loan to fund your new venture is that you do not have to worry about dealing with investors. Even if you borrow money from someone you know, he or she will likely want a cut of your profits and might even nag you about how things are going. Another advantage is that it makes budgeting easier because it is a fixed expense. Additionally, borrowing money from people you know is stressful and most people would rather fund their business themselves rather than risk potentially damaging personal relationships.
Disadvantages of Getting a Personal Loan
Depending on the type of loan you get, a personal loan may come with a high interest rate. The interest you have to pay on the loan eats into your profits. Another problem with getting a personal loan is that it can be difficult if you have shaky credit. When you take out a personal loan to fund your startup costs, you have to realize that you are linking your personal finances to the success of your business. If you do not have a plan to repay that loan regardless of how well your business does, then you could find yourself in financial trouble. The final problem is that taking out a loan means adding to your debt.
Tips for Getting a Personal Loan
Online lenders like creditloan.com and lendingtree.com are often a good starting point for finding a loan. You can fill out one application and the websites will submit it to different banks who will contact you with loan offers. If you belong to a credit union, it can also be a good place to apply for a loan because they tend to be more lenient about issuing new loans than traditional banks are, especially when it comes to existing customers. Wherever you try to apply for a loan, do as much as you can to boost your credit score ahead of time so you get a better interest rate.
The decision about whether to use a personal loan to fund your business is different for everyone. Ideally, it would be better if you could raise funds that you do not have to pay back, but that rarely ever happens. According to the Small Business Administration (SBA), many small businesses are funded by personal loans, so taking out a personal loan for your new business may be a good idea as long as you feel comfortable that you can repay it.