The drive toward opening a business runs deep in the American spirit. This is the country of self-made women and men, after all.
Of course, opening most businesses also means looking at your available financing strategies. Of course, most of those strategies depend on great credit scores, solid presentation skills, or leaning on friends and family. If you can’t secure traditional business funding and don’t want to put friends and family on the spot, personal loans for business might solve your problem.
Like most financing options, a personal loan for business startup purposes comes with pros and cons. Keep reading for the major advantages and disadvantages.
No Conditions on Spending
Many business loans come with fairly strict stipulations on how you spend the money. You don’t take out a loan. You take out a loan for new equipment.
Angel investors and venture capitalists take an ownership stake, which gives them some de facto control over spending. With personal loans, how you spend the money is all up to you.
Easier to Secure
A personal loan often proves easier to secure. One, you can put up assets as collateral if necessary. They also take your personal income into account.
Your credit score can still work against you, but may just a higher interest rate.
You See the Money Faster
Once you get approval, banks typically credit your account in short order. In some cases, you may see the money in your account in under a week.
You Put Your Personal Assets at Risk
If your business goes under, you are personally liable for that loan. That means that lenders can come after your personal assets to try and recoup their losses. It also means that, if you default on the loan, it goes on your personal credit score rather than going against a business.
Much Lower Lending Caps
Business loans are often measured in millions of dollars. Personal loans are measured in thousands or, occasionally, tens of thousands of dollars. As a general rule, you’ll need a business loan or venture funding if your startup needs more than $50k – $100K.
Less Time for Repayment
Your typical personal loan comes with a fairly short repayment window. Depending on the size of the loan and your lender, you may only get three years.
For larger loans, you may get five years and the repayment times tend to top out at seven years.
Personal Loans for Business and You
The question of whether personal loans for business are right for you hinges on your situation and your certainty about your plans. Taking out a personal loan for business can provide you with the funds you need to get off the ground. If you can’t get another kind of funding, it might end up as your only choice.
The tradeoff is that you put your personal finances and credit score in the crosshairs if things go wrong.
Looking for more tips on business financing or startups. Check out the posts in our Money and Start sections.