For businesses that need a small to moderate amount of funding for start-up costs, getting a personal loan may be easier than getting a small business loan. Because many small business ventures are prone to failure and the assets of the business often secure the loans, most banks have stricter lending policies for small business loans. For example, if you run into trouble and it looks like your business is failing, the bank may ask you to pay back the loan in full whereas that is not as likely with a personal loan. Here are some suggestions on how to obtain a personal loan from sources other than traditional banks and how to use the money to fund your new business.
Peer-to-Peer Lending
Think of peer-to-peer (P2P) lending like venture capitalism for small businesses. Websites like Prosper connect borrowers with private lenders who are willing extend personal loans for a variety of reasons. One big advantage of P2P lending sites is that you can submit extensive paper work such as your personal financial information, your business plan, how you plan to repay the money and other information that will help convince the lender that you are a worthy borrower. If you have a good credit rating and you can make a good case for how you intend to use the loan, you may be able to find someone who will be willing to invest in your business.
Internet Lenders
In many cases, Internet banks have more lenient lending policies than traditional banks. You can often get personal loans from creditloan.com and similar websites even if you have less than perfect credit. Another advantage to getting this type of personal loan is that you build a relationship with the website’s lender. After you make a good number of consecutive payments on time, usually at least six to twelve, the lender will be likely to extend you more credit if need be or lower your interest rate. Internet lending sites save consumers a lot of time because they take your information and match you with the best lender so that you do not have to do as much legwork yourself.
Secured Loans
The trick to getting a secured personal loan is to use your personal assets as collateral, not your business assets. This will normally get you a better interest rate. This is also a great way to get the money you need at a reasonable interest rate without having to worry about the lender monitoring how your business is doing. Your personal assets secure the loan so, on paper, it has nothing to do with your business. One word of caution though, this ties your personal assets to the health of your business and puts them at risk. Make sure that you have a debt reduction strategy to pay the loan off as quickly as you can. It is also a good idea to have some kind of back-up plan for paying off the loan if for some reason your business is not as successful as you hoped.
Have a Spending Plan
Have a plan for how you are going to use the money from your personal loan in your new business. This will help you both while you are applying for the loan and after you receive it. Keep in mind that a spending plan is part of your budget, but it is not exactly the same thing. Your business’s spending plan should show how you are going to take the money from your loan and invest it in your business to turn a profit. It is also a good idea to not spend every cent you borrow and make sure you keep some money in reserve for unexpected emergencies. It is better to have money in the bank that you are not using than to not have money available when you need it.
Starting a new business is always a scary and exciting adventure. Finding the means to make your dream happen is thrilling. However, you must be realistic. When mix your personal finances with your business finances, things can go bad quickly if your plan does not work out as well as you hoped. As it with any financial venture, try to start modestly and build slowly. Starting a business is much like investing, if you can lower your risk factor than you have a better chance of staying financially viable longer. Moreover, when things do work out and you finally pay off your personal loan, that will make your business success that much sweeter.
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