Published in July 29, 2021
You’re ready to kick-start your business but don’t know what loan is best? Luckily, there are many financing options available to businesses. Let’s take a look at options and find out if it’s best to take out a business loan or a personal loan instead.
Most businesses make use of a loan at some point in their life. There are many reasons why you may want to take out a loan for your business. You may just be starting out and need a solid financial base for your operations. Maybe you need to boost your cash flow to get through a dry period or maybe you want to invest in growth and expand your company. Both business loans and personal loans are suitable for different occasions and have their pros and cons. Whatever it is, let’s help you determine what loan is best for your purpose.
If you are considering getting a personal loan or a small business loan instead, there are a few key points to consider. A personal loan is a type of loan based on your personal credit history. It may be easy to get if you have a good credit history already. A business loan, on the other hand, will look at both you and your business credit history. This may make it more difficult to get a business loan, especially if you’re new to the market.
Do you know your credit score yet? It makes sense to keep an eye on it and build a solid credit history over time. Tools like Tippla can help you to monitor and improve your score.
Also, keep in mind that business loans can only be used for business expenses while a personal loan is more versatile. However, you will be personally liable for any debt, not your business. This may make it difficult to separate finances in the future, especially, if you have a business partner.
Before we get into further details, let’s take a quick look at the pros and cons of each loan type.
Before applying for a loan of any type, there are a few factors you should keep in mind:
Another thing you should consider is the interest rates you might have to pay. Here are the average interest rates for personal loans.
Technically, both types of loans offer good value for your business, in their way. Let’s take a closer look at the benefits of each.
If you decide on taking out a business loan, the loan will automatically be held in a joint account that’s easily accessible by all partners. The risk on each individual is tremendously reduced due to the loan being guaranteed by all involved partners. However, if you decide on taking out a personal loan, you won’t have access to the company’s loan. The lack of access to joint accounts can harm the efficiency of the company and potentially create problems with responsibility if the company fails to pay the loan.
If you do decide on taking out a personal loan with business partners involved, there are some options of a joint application personal loan. This type of loan will most likely require a maximum of two applicants, however, you might find some that allow up to four partners.
With business loans, lenders will most likely apply strict limits on your loan for the first year. However, if you provide good initial projections, you could access an increase in your funds. You will also need to use up the entirety of loan on business purposes.
On the other hand, if you want to increase your funds later in a personal loan, you will have to provide your lender with evidence that the initial funds were used successfully to grow the business. However, you may also find personal loans useful for funding your business as well as other personal needs.
Deciding whether you prefer an unsecured or secured business loan mainly depends on how much you plan on borrowing. Many banks will require security deposits or belongings for start-up loans. Some banks may only offer an unsecured line of credit loans. You may find some online lenders who could also offer unsecured loans. However, keep in mind that you’ll most likely be charged higher interest on unsecured loans, so many may prefer taking out a secured loan. Although secured loans offer lower interest than unsecured loans, you will need to provide an asset as collateral. This asset can be repossessed if you fail to make your payments. Assets can include cars, homes, or expensive belongings such as jewellery.
It’s important to note that you will need to be prepared to fully pay off secured loans, as repossession of your asset can impact your personal and professional life.
Before you apply for a loan, here’s a helpful checklist Tippla has put together to get you started:
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.
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