Business loans are the best capital and cash injections needed to grow your business. Unfortunately, they’re not always accessible. To qualify for a business loan, you may need to be in business for at least two years and meet the minimum annual revenue eligibility.
So, it might be impossible to get funding to start your business. The good news is that there’s an appealing alternative to a business loan. A personal loan is an accessible financing option for entrepreneurs who want to invest in a new business idea.
While personal loans offer limited and smaller loan amounts than business loans, they require less documentation and are easier to qualify for.
Where to Get a Personal Loan for Your Business
Here are places you can look at to get a personal loan:
- Online Lenders In general, online lenders typically offer some of the best personal loan rates and fees. These lenders allow borrowers to get prequalified before applying for one. But don’t worry; this process won’t affect your credit score. It enables you to compare interest rates and determine the best option quickly.
- Credit Unions These non-profit organizations allow members to borrow money from pooled deposits at affordable interest rates.
- Banks Some traditional banks like Wells Fargo and Citi offer personal loans. You may get a good offer based on your relationship or connection with the bank.
No matter what the loan’s source is, it’s crucial to note that interest rates on personal loans can vary based on your creditworthiness. Borrowers with stellar credit scores can qualify for a loan with low-interest rates.
But people with poor credit scores might find it hard to qualify for at least a 30% interest rate. Many factors can affect your credit, including medical bills and credit score.
While unpaid medical bills don’t directly impact your score, they will significantly hurt it when they show up on your credit report. That’s why you must take some time to compare offers and shop around.
How Much Can You Get In a Personal Loan
The amount you can get in a personal loan varies depending on several factors, such as the lender, your credit score and history. Depending on where you look, you might be able to take out as little as $600 or as high as $100,000.
However, it doesn’t always mean that you can borrow money up to the maximum amount. Keep in mind that lenders will assess your income source, credit history, and other debts to find out how much they are willing to lend you.
So, if you have a high debt-to-income ratio or a poor credit score, the personal loan amount you can borrow might be limited.
Pros and Cons
Personal loans are an excellent funding source for your business. However, there are some pros and cons to keep in mind.
Pros
- Accessible Entrepreneurs looking to fund a new business or start-up with an insubstantial history might not qualify for a business loan but a personal loan.
- No Collateral Business loans often require borrowers to put up collateral to receive the funding. In unsecured personal loans, you don’t need to worry about putting up collateral and risk losing it if you fail to repay the loan.
- Inexpensive Rates Interest rates on personal loans tend to be low, particularly for borrowers with above-average credit scores.
- Fast Personal loan applications usually get approved on the same day, and you can get the fund within one or two business days after approval.
Cons
- Upfront Fees Some lenders often charge an upfront fee, which gets deducted from your loan disbursement. The origination fee can be as high as 6% of the loan amount.
- Shorter Repayment Terms Personal loans offer shorter repayment terms, usually five to seven years. The monthly payment might be expensive, depending on how much you borrow.
- Liability Irrespective of your business’s performance, you’ll be solely responsible for paying the loan as it’s in your name.
- Less Capital Personal loan amounts often range from $600 to $100,000.
Alternatives
A personal loan is an appealing option to fund a business. Here are the different financing methods that may also suit your business needs.
- Invoice and inventory financing
- Merchant cash advances
- P2P financing
- Home equity lines of credit and home equity loans
- Business and personal lines of credit
- Business credit cards
- Personal credit cards
A personal loan is an effective way to cover expenses to get your business off the ground. When applying for this type of loan, read the loan conditions thoroughly. If something isn’t clear, ask the lender directly to avoid any possibilities of trouble with your loan.
