There are many components to consider when you’re self-employed. These include the feasibility of your business idea, its scope, its probable returns. What’s more, you need funds to operate.
When it comes to arranging funds, things could get tricky. You can approach investors, but that could take time. Meanwhile, your business continues to languish.
If you find yourself in this situation, a personal loan could be a likely source of financing for your business.
Moreover, these days you can take advantage of an easier application process and fewer formalities. Therefore, getting a personal loan for self-employed has become more convenient. However, with so many loan options available on the market, how can you know when should you choose a personal loan for your business? Let’s find out.
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When Your Business Is in Its Initial Stages
Traditional business loans are available only to companies that have a good record of accomplishment. In this way, lenders have better assurance about the borrower’s ability to repay the loan. Therefore, when you are just starting your business, you might find it difficult to obtain a business loan. As a matter of fact, often you are eligible for a business loan only if you have been in business more than three years.
However, there are no such requirements when you’re applying for a personal loan. What’s more, you are not required to specify how you’re going to use the funds you’re borrowing. Neither will you need to declare the age of your business. Therefore, a personal loan for your business could prove to be a good option.
When You Have No Collateral
Traditional lenders prefer approving a loan applied against collateral. This is because their funds are at stake. What’s more, they might ask for a guarantor, too. However, while your business is still in the growth stage, it might be difficult for you to arrange collateral or a guarantor. Therefore, lenders might not approve a traditional business loan for your business.
On the other hand, in such a situation, you could avail a personal loan. A personal loan is approved without collateral or a guarantor. Moreover, you can avail a personal loan with flexible terms and no hidden charges.
When You Need a Quick Loan
Different lenders have different policies. For instance, you might have to submit a plethora of documents in order to take out a loan for your business. These could include business documents, tax records, financial reports, and so on. This could complicate the approval process and delay your business plans and projects.
In contrast, lenders typically disburse a personal loan within only few hours. Moreover, they generally require minimum documentation. And they have and few eligibility criteria. What’s more, the viability, revenue, and performance of your business will have nothing to do with your personal loan application.
When Is It Better to Choose a Business Loan Instead?
The above scenarios outline the situations in which you are better off choosing a personal loan. However, when should you look at a more traditional business loan instead?
When You Have a Partner
When you have a proprietary business, you are solely in control of your finances. In this case, availing a personal loan is a good option. However, if you have a partnership business, things could be different. In a partnership business, where your partners control the finances, availing a personal loan in your name could be risky.
This could put your credit score and creditworthiness at risk. In case of any default on the part of your partner or partners, it would be your responsibility to repay the whole loan amount. Doing so could affect your credit score. In such circumstances, it would be better to apply for a business loan instead of a personal loan.
When Your Business Has an Excellent Credit Rating
A good credit rating is an essential criterion for loan approval. If your business is running well and you need funds to expand or upgrade it, a business loan could be beneficial. Based on an excellent credit rating, you can easily get attractive business lending rates. Do you have a credit score of 750 or higher? Then your business loan application can get easily approved.
When You Already Have a Personal Loan
Lenders might not approve a second personal loan application if you self-employed and you already have a personal loan. Moreover, if your personal credit score is low, you might face difficulty in availing a personal loan. To ensure your personal credit report does not obstruct your business dreams, you can avail a business loan that is not dependent on your credit capability.
A Final Word About Taking out a Personal Loan if You’re Self-Employed
If you’re self-employed and you decide to take out a personal loan, be sure to compare various lenders. Make sure you’re getting the lowest interest rates, the best repayment options, and the right loan amount. Then confidently proceed to take out a loan for your business.