Whatever business you are into or rather say at whatever stage your business is whether it’s a start up or at a rising-stage or a flourishing one, it does needs funding. Whenever any of us need finance for our business the only thing that comes to our mind is business loan. But, yes there is an alternative apart from business loan which can be considered- “personal loan”.
Even this has a twist that personal loan does comes in small amounts so it will be beneficial only for small entrepreneurs.
Difference between personal loan & business loan
Personal loan is taken for any personal needs like repair or restructuring of your house, or buying any stuff for yourself, etc. whereas, on the other hand business loan is just for the funding of business.
Taking of business loan isn’t easy as banks are very strict with their rules- they do check the status of your business, will your business flourish, the biggest- collateral security, credit history of your business. Applying for a business loan without any business history is going to be a tough time for you.
Thus, for personal loan what just matters is your credit history. If you have a good credit then taking personal loan is like a piece of cake for you.
In short you can say that when giving you are a business loan the entire focus of the bank is on your business model, whereas, on the other hand in personal loan it’s just on you.
When to opt for personal loans for business operations
- The foremost thing is that your requirement of the amount is small as personal loans aren’t available for large amounts.
- You haven’t started your business and you want to start it. It is the only stage when your fund requirement is small as any ongoing business’ requirement is always more and more.
- If you do not have anything to give to the bank as collateral security as getting business loan without collateral is next to impossible.
- You know that you do not qualify for SBA (Small Business Administration) loans.
- You have a good credit score as it is only when you easily get personal loan.
Factors to be considered while opting for personal loan
- When you are taking a personal loan for business, you are mixing up both your personal and business funds. Initially you won’t face any issue with this but as your business expands differentiating between the 2 funds would get difficult making things complicated.
- Another thing is the interest rate on personal loan is much higher than small business loan so cumulatively you will end up paying more.