Business loans guaranteed by the Small Business Administration (SBA) are great funding options for business owners. They’ve got everything—low rates, best terms, and high fund limits. However, they’re hard to acquire due to their requirements, such as good credit score, business maturity, and a rigorous, lengthy application process with no guarantee of approval.
The good news is that personal loans can be a feasible alternative to business loans. Personal loans are known for their quick disbursal process and same-day funding, helping businesses ensure cash flow during lean times. Apart from that, here are other perks of personal loans for your business.
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Personal loans are easy to qualify for, even with bad credit. They’re underwritten based only on three primary factors: your credit score, income, and debt-to-income ratio.
By contrast, business loans and other traditional lenders will have to look at your business finances and your personal credit. If you’re new to the business, it will likely be hard for you to qualify for traditional loans due to your insufficient or lack of track records.
Moreover, the most accessible personal loans to qualify for are those with a low credit score threshold and sold online. Compared to other traditional lenders, online personal loan lenders tend to have less stringent qualification requirements and cater to applicants with damaged credit. However, remember that they typically charge higher interest rates, especially if you have a bad credit score.
Another reason why the approval process for personal loans is easy is that it’s unsecured. In other words, lenders won’t require collateral. Instead, lenders use the borrowers’ creditworthiness as a deciding factor for loan approval.
Conversely, business loans rely on borrowers’ assets as security, which is sometimes multiple times the value of the business loan. Consequently, many business owners have a hard time taking out business loans.
Since there’s no collateral required, there’ll be no hard assets that will be taken from you or your business if a personal loan goes unpaid. However, lenders can report late payments to credit bureaus, hire a collection agency, or file a lawsuit against you, damaging your business’s image.
You can choose from various fixed periods to repay a personal loan, ranging from 12, 24, 36, 48, or 60 months. Most of the time, a longer loan period translates to lower monthly payments. As a result, you have more wiggle room in your budget and spare cash for your other business obligations, such as operating costs, administrative expenses, and emergency funds.
It’s important to note that a loan’s repayment period ties to its interest rate. Repaying your loan long-term means accumulating more interest charges over time. In other words, long loan terms tend to have high-interest rates.
Even worse, a longer repayment term can limit your future credit options. If your budget allows you to pay higher monthly payments, opting for the shortest repayment period is preferable.
As stated earlier, personal loans are renowned for their fast disbursement of proceeds. Typically, the processing of personal loans lasts between one to seven business days.
Specifically, the approval process takes around one to three business days, while the disbursal takes about one to five business days. Other traditional loans, in contrast, usually take as long as 30 days to process.
Furthermore, one factor that speeds up your personal loan application process is the credibility of the information you’ve furnished. Any false information you’ll provide on your loan application is considered a lie and a crime.
Nonfactual information includes exaggerated income, no debt, false employment, inaccurate residency, and undervaluing assets. They don’t only slow down your loan application process but also leave a bad impression on lenders, which, in turn, will be disadvantageous to you and your business in the near future.
Personal loans can be used for a variety of purposes. For example, one in three Wisconsinites is struggling to cover their basic household expenses. Hence many of them have been taking out personal and payday loans in Racine, WI, to afford their food, housing, clothing, utility, and transportation costs. Apart from these, you may also use personal loans to pay off medical bills, wedding and vacation costs, and virtually any other unexpected expenses.
Personal loans can also be used to cover expenses associated with starting or running a business, such as covering costs for inventory, last-minute staffing, and broken equipment. However, before applying for the loan, ensure that personal loan lenders don’t have any restrictions when using the loan proceeds for business purposes.
More often than not, lenders could ask for full repayment of the personal loan plus the interest immediately if they found out that borrowers used the loan proceeds for prohibited purposes. Hence, it’s best to be upfront about your intentions to avoid breaching any loan terms and suffering from their consequences.
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