Do you have an idea for a small online business that you want to get off the ground? If you don’t have the capital to start, you have two options: either take out a business loan or a personal loan from a reputable money lender .
You may be thinking business loans are certainly the best choice. That’s true for most cases, but in others, a personal loan may be more ideal.
How can that be? Find out more below.
Pros of Business Loans
Firstly, discover how a business loan is more advantageous.
Access to a higher credit line
Business loans are designed to help you gather capital for your business. With that, lenders will allow you to borrow large amounts, as much as you need to finance your enterprise. Personal loans will not let you borrow as much as business loans.
If you are a small-to-medium business (SMB) owner, these loans are great for you. You don’t have to dip into your personal savings or borrow from family to fund your business.
Be prepared to submit proof that your business exists and is earning, though. Lenders often ask for these so they would know your business is legitimate.
Builds credit history for your business
Your business’ credit history is essential. If you can build it to a high enough level, you’ll find it easier to secure additional loans in the future. You can easily get loans for purchasing new equipment, renting a new space, or expanding to another branch.
Just make sure to pay your monthly repayments on time and in full. Doing this will surely make your business score highly in your credit rating.
Customisable terms
Business loans have terms that you can adjust depending on the financial performance of your business. If you don’t expect lots of profits the first few years, for example, you may be able to negotiate lower interest rates and smaller monthly repayments temporarily. As the business picks up, the lender can slowly increase the monthly repayments and interest rate to the ‘normal’ level.
Pros of Personal Loans
Now, consider why a personal loan may work better.
Fewer documentary requirements
If your business is barely off the ground, you may find it hard to fulfill the documentary requirements of a business loan. In this case, a personal loan is better because it needs fewer documents from you. Often, all lenders ask for a personal loan is your income statement and identification. They will also look into your personal credit score to find out if you qualify.
Faster approvals
Personal loans get approved much faster than business loans. The latter usually have long approval processes, so you cannot get the funds you need right away. With personal loans, you can. But the funds you can get are less than what business loans can provide.
Flexibility
You can use the money from a personal loan for any purpose, including business. So you are not obliged to use the money for business purposes only; If you have a personal need, you can use some of the money from your personal loan. You cannot do that with a business loan.
Conclusion
In most cases, a business loan is a much better choice for a small online business. But in some cases, you are better off taking out a personal loan, especially if your business still lacks the documentation that business loans require. You would only be allowed to borrow smaller amounts, though, so consider how much your business will need as well.
