Personal loans are funds borrowed from credit unions, online lenders, or banking institutions that you can use for various purposes, including funding business-related expenses. Understanding the advantages and disadvantages of personal loans for business use can help you determine if they’re a favorable financing option. Discussed below are nine pros and cons of using personal loans for business.
Pros of using personal loans for business
Taking out a personal loan for business use comes with multiple advantages, including the following:
Few eligibility requirements
Qualifying for a business loan can be challenging, especially for startups and businesses with limited credit, unproven financial performance, and insufficient collateral. Business loan lenders will also look at your personal credit score to determine your eligibility.
This is where personal loans for business come in. Unlike business loans, personal loans have fewer eligibility requirements that are easy to meet. Personal loan lenders usually consider your income and credit score to decide whether to lend you money.
In addition, you don’t need any comprehensive business plans, collateral, or financial statements to quality. Different personal loan lenders have varying eligibility criteria. So, check what you need to get a payday loan or any other personal loan and prepare accordingly to boost your approval chances.
Streamlined application process
Unlike business loans, which have lengthy, time-consuming processes and tedious paperwork, which can lead to application denials for not following the correct procedure, personal loans have a streamlined application process. Personal loan applications don’t involve a lot of documentation. Additionally, you can complete the entire process online via your lender’s mobile application or website within a few minutes. This eliminates the need for physical paperwork and visiting the lender in person.
You don’t need any collateral
Unsecured personal loans don’t have any collateral requirements. This makes them a more viable option than business loans, where collateral can be a barrier to getting approved for financing. Usually, lenders approve your personal loan based on your credit score, proof of stable employment, and regular income.
This eliminates the need for lenders to waste time evaluating the value of collateral to give you money, making the process much faster. Using unsecured personal loans for business ensures you aren’t risking your personal assets.
Fast funding
Most personal loan providers provide quick approval and funding times, allowing you to access business financing sooner. Some lenders can even wire the money into your account the same day you apply if you meet all the requirements.
No down payment is required.
Small business loans require a down payment to minimize risks for lenders and to assure them that your company can afford the loan, creating an eligibility barrier. Fortunately, personal loans don’t have a down payment as a requirement.
Cons of using personal loans for business
Low loan limit
Personal loans usually have lower loan limits than business loans, which may be insufficient for significant business expenses.
Shorter repayment durations
Personal loans usually have shorter repayment periods than business loans, which can translate to higher monthly repayments that may not be easy to afford.
High interest rates
Personal loans have higher interests than business loans, inflating your company’s borrowing expenses.
No effect on business credit
Personal loan repayment history doesn’t impact your business credit, which can be disadvantageous when seeking to build business credit.
Endnote
Personal loans are a suitable business financing option for startups and companies struggling to access business loans. However, understanding their pros and cons can help determine if they’re perfect for your business.
