When you got some great ideas for a business and failing to come up with sufficient funds for starting the business, then it might break your entrepreneurial dream. So, when you fail to get any investor to back your business or arrange any funds from anywhere else, then it’s time to become more creative and enhance your thinking towards financing your business yourself. Yes, you can finance your own business and your dream of becoming a successful entrepreneur will also come true.
You can take a personal loan for funding your business. This is called a small business startup loan. This is the loan which is given to those who have zero to no business history along with aiming financially towards startups.
As you take a personal loan for any other purpose such as for marriage, home improvement, children’ education, and many other reasons, the same is the loan for starting your business. Since everything is not flawless, this small business startup loan has also some benefits and some flaws. So, here are the pros and cons of having a personal loan for financing your own business:
Pros of small business startup loan
- If you carry a limited financial history, then also you need not worry as this is the best option for starting the business. Getting this type of loan is very easy as the lender consider only your credit score and income, not the finances of your business. Also, there is no need to provide any documentation or extensive business plans like you have to give in a business loan. The more beneficial thing is that the terms of the loan are more favorable to you.
- Most of the business loans require assets, such as your inventory, as collateral for getting a loan. By any chance, if you fail to make payments, then the lenders can seize your asset and recover their money. But unlike this, small business startup loan is collateral free. If you become defaulter by any chance, then the lender won’t be able to seize any of your assets but your credit score will be damaged.
- The small business startup loan gets payment disbursal very quickly and you don’t have to wait much for getting the finances for your business.
- If start getting profit in your business and able to arrange funds for prepaying your loan, then you can do this you will not be charged with any kind of fees.
- The most interesting part of this loan is that it is interest-free for the first nine to 15 months. It means you don’t have to pay any interest on the loan.
Cons of small business startup loan
- Though the payments of these loans come very fast. But if they take time, then it can be up to 35 to 40 days for completing the financial process.
- By taking this loan, you are putting your credit on risk. Since you get this loan only your good credit history and income. By any chance of you fail to repay your personal loan then you will be directly hitting your credit history. Nothing will go but your history and credit score will be damaged.
- For getting this loan, not only good but excellent credit history is required. There should not be a single flaw in your history as this is the main criteria for getting the loan.
- The amount of loan will be limited. You will not get a huge amount of loan since your income has been taken as the only source for the repayment of the loan.
- The interest rate could be high to very high. for this kind of loan.
Now the question arises who can get small business startup personal loan? Since there are a lot of options for small business startup loan which has been classified as SBA microloan, small business grants, friends, & family and crowdfunding. There are many new and young businesses qualify for a small business startup loan. Any business which is younger than 6 months can easily avail these loans.
The most important factor in availing this small business startup loan is the credit score. If you have a good credit score, then your chances of getting qualified for SBA microloan or business credit card becomes high
The application process for small business startup personal loan depends upon the method of financing that you are applying to. Here is a small breakdown of all the options of small business startup loan:
- The loan type which has the most intensive application process is SBA Microloan. There will be the requirement of many documents and the whole process can also take at least a few weeks.
- Business credit cards come with a very simple application process. They only require your federal tax ID or your Social Security number.
- The application process for a small business grant is dependent on the grant that you have applied.
- Creative funding options like friends and family or crowdfunding will not have any traditional small business startup loan applications, and they will entirely dependent on your unique funding situation.
So, if you are planning to start a new business, not to forget considering the above-mentioned points and then take a right decision.