With so many startups being built, from one late day at the office or while sitting in a cab in traffic, the question of business capital is everywhere. Many new entrepreneurs toy with the idea of choosing a personal loan for business. Capital Investment is a basic necessity for startups and budding entrepreneurs, because investment is the lifeline on which the whole venture survives. There are many options available to entrepreneurs looking towards procuring capital today, the most common being applying for a loan.
Loans can be obtained from banks, other financial institutions or even a generous family member. Loans might act as seed capital to help the idea take off. People generally opt for a personal loan for business purposes. Although personal loans have their own set of frills, weigh your scales carefully and gain clarity on potential outcomes and repercussions.
What are Personal Loans?
A personal loan is money borrowed from a bank, or other financial institutions that you pay back in fixed monthly payments, or installments, typically over two to seven years.
Availing a personal loan is simpler as most personal loans are ‘unsecured’ which means that they are not backed by a collateral. A secured loan is usually backed by something you own, but you can lose the asset if you default.
While deciding on the processing of the loan amount, lenders usually just glance through your credit score as a strong credit score guarantees a breezy processing of your loan amount. You can use the sum for several purposes, which includes pumping the money into your startup.
Considering the Cons
The benefits which a personal loan offers are plenty, but the cons have to be considered equally. The lending limits for the personal loans are typically lower and the interest rates charged are generally higher. Using a personal loan for business purposes denies your business the opportunity to build its own credit and exposes your personal credit score to a risk of taking a hit if the business under performs, which would put you among people with bad credit scores.
Obtaining capital for the dream venture might be a big step for you as an entrepreneur, but it is advised that a person should tread carefully on the financial grounds. Researching and gaining a deeper understanding about the whole scenario from a good financial advisor will be beneficial and will help you decide what is the best match for your entrepreneurial journey and personal finance. Opting for a business loan is a better idea.
