Thinking about starting a small business? Of course you’ll need a little seed money for the planting, but is a small personal loan the best choice? Learn more!
Thousands of Americans are opting for personal loans now more than they did a few years back. Most personal loans range between $1,500 and $50,000. The trends indicate that most borrowers spend their personal loans paying bills, to settle their debts, to buy cars, and to cater for financial emergencies among other liabilities. But did you know that you can use personal loans to start a business?
Thinking about starting a small business? Of course, you’ll need a little seed money for the planting, but is a small personal loan the best choice? Learn more!
What Are the Benefits of Obtaining a Small Personal Loan?
When you are thinking of starting a business, a personal loan is not really something that seems worthwhile or adequate to finance any business let alone a small one. It is true that various factors determine whether or not a personal loan is right for you. Such factors include, how much money you need to finance your business, how much money you actually have in your own personal account, and why you think a loan is a viable decision.
You’d be surprised to know that some of the richest people in the world started small before they became billionaires. From business loans, secured and unsecured loans, crowdfunding, to friends and family, there’s no shortage of places you can go to for some money to start off your small business.
Out of all this, however, small personal loans may be your best option. Why? Read on to find out:
With say, auto loans and mortgages, you are restricted to using the cash for specific purposes. With personal loans however you can use the money on whatever you wish including starting a small business.
Compared to other types of loans a small personal loan has friendly interest rates. Provided you have a good credit score, you can get interest rates as low as 5% APR which is quite low compared to credit card interest rates which start from around 13% APR.
Wide Scope of Borrowing
You can acquire a personal loan for business ranging from as little as $1,500 to as much as $100,000. Once you do your math and see how much you need to finance your small business, you’ll find out that you fit well within this range.
No Need for Collateral
Young people like students, for example, may have excellent business ideas but haven’t yet amassed enough wealth or investments to borrow against. Small personal loans are a great option here because you often aren’t required to forfeit any collateral.
If you have a poor credit score you have a higher chance of being approved for a personal loan than any other type of loan with stringent measures. Customers with credit sores reading 600 and slightly lower are able to access a small personal loan.
Note, however, that in this case, you are likely to pay higher interest rates compared to a customer whose credit score is good.
Reasonable Repayment Terms
When it comes to personal business loans, you have plenty of time to focus on growing your business in order to gradually repay your loan. Instead of paying the loan within a few weeks as is the case with payday loans, for example, you have up to a year to service your personal loan.
Where to Find Small Personal Loan Lenders
Wondering how to get a small loan? The first step begins with finding a good lender. Examples of good lenders include:
Credit Unions and Banks
Most people already either have bank accounts or are members of a credit union. You have the liberty of using your own bank account to act as collateral (if need be) when borrowing personal loans in the same institution. Banks and credit unions require you to be physically present to make and submit your application.
Online lenders have in the recent past become incredibly popular among small scale borrowers. If you are in a hurry to access your loan, online lenders are your best bet. They are incredibly straightforward.
If you qualify, your loan gets approved within minutes and can access your money the same day. What’s more, they offer significantly lower interest rates compared to banks or credit unions.
What to Consider to Get the Best Deals
Getting a personal loan is not hard. At Bonsai Finance, they have your back. But why is it that a high percentage of borrowers are unable to properly repay their loans? To avoid getting stuck and to get the best deal for you, here are a few things to consider:
Find a Legitimate Lender
To avoid getting scammed, you should first check and make sure that the lender is registered in your state and that they have a street address. This information is easily accessible if you check the lender’s site or call the Attorney General’s office. A lender failing to ask for your credit history is another red flag of an illegitimate lender.
Can You Afford the Loan?
Taking out any loan means that you are committing yourself to repay it within the agreed time. Failure to this, you may get sued hurt your credit score or even lose your collateral. Only go for the lone whose monthly repayments you can afford to pay.
Repay within the Shortest Time Possible
It is easy to pick the longest time possible to pay your loan. Owing to unforeseen circumstances which may occur in the future, it is advisable to pay back the loan within the shortest time possible. Do this whenever you have some extra cash.
But first, ask if early repayment is an option because some lenders may charge a prepayment penalty. On the flip side, some lenders can even give you a discount on interest if you use autopay or paperless billing.
Ready to Get Started and Acquire Your Small Personal Loan?
Admittedly, any type of business, big or small is not for the faint-hearted. More often than not you will need a financial ‘pick me up’ to get you out of a rut. With the above guidelines, you know what to do and what to watch out for when in search of a small personal loan.
If you are ready to join the world of business, check out our blog on qualities of successful entrepreneurs.