Freshly penned business plans always require some type of financing. The trouble is that your traditional lender only wants to work with established businesses. So, where should the startup turn for capital? The answer may lie in alternative lending, and more specifically in personal loans.
Taking out a personal loan for startup cash is a little different than what you might be used to if you have only dealt with banks up until now. When you apply for a traditional business loan, the lender will focus on the age and vitality of your business. You may need to provide several months of financial data to prove that your business is profitable. This makes it nearly impossible for startups even to make it through the door.
Online personal loans require much less red tape for consumers to cut through – at least in terms of providing data about your business. Financial institutions offering personal loans care less about your business and more about your own credit history. They use FICO, a credit score calculation system that rates consumers on several factors, including credit account payment history and the number of credit accounts in collection.
FICO separates consumer credit scores into five categories.
The lender will look at your credit score and your credit history when determining your eligibility for the loan. Other factors may be considered as well. If you are approved, then you will be expected to pay back the loan and fees – even if your business fails.
The personal loan application process is straightforward. You submit personal information like name, address, phone number, and email address. You will also need to submit your Social Security number, which a lender will likely use to view your credit report.
Online banking has made the personal loan application process much easier, but it has also increased the risk of data theft. You must ensure any lender you submit sensitive personal data to has implemented verifiable Internet safety protocols.
According to a recent study released by Pepperdine University, about one-third of small businesses receive funding by taking out traditional business loans. The percentage is much lower than the 75 percent of large businesses that receive some type of business loan funding from traditional banking sources. Many small businesses acquire financing from alternative sources.
If you are a small business owner, when does it make sense to apply for a personal loan?
After you have established your business as profitable, it will be much easier to obtain a small business loan. Startup funding is available for some businesses, but if that does not pan out, then you may need to request a personal loan.
Big banks expect you to borrow big sums. But as we mentioned, personal loans are ideal for borrowers requesting a lower amount. If you need several thousand dollars for a small percentage of inventory for the first week of operation, then a personal loan may be the right financial strategy for your startup.
Not all small business loans require you to put up collateral. Some do; and if you don’t have any collateral, you will be denied for the loans that require them.
Sometimes when you’re asked a question, you are told that there are no wrong answers. That is not the case for your loan reason. Before you can figure out if borrowing money will help you make more money in the long run, you need to look at why you are borrowing the money.
A common reason for business owners is to meet payroll the first week since there is not any revenue generated by sales to pay wages. Another reason is to address maintenance issues. Many small businesses bridge the gap between sales and payday via personal loan financing. Each of these can be good in some cases and bad in others.
After you have determined your loan reason and whether it is a smart business decision, we can help you request your funding. Simply click the “Get Started” button at the top of the page to go to our loan request form. It only takes a few minutes to fill out and get your answer.
The offers that appear on OpenLoans.com are from companies from which OpenLoans.com receives compensation. OpenLoans.com does not make loan offers, but instead pairs potential borrowers with lenders and lending partners. We are not a lender, do not make credit decisions, broker loans, or make short-term cash loans. We also do not charge fees to potential borrowers for our services and do not represent or endorse any particular participating lender or lending partner, service, or product. Submitting a request allows us to refer you to third party lenders and lending partners and does not constitute approval for a loan.