With 82% of failed small businesses attributing the demise of their companies to cash-flow issues, you really need to watch your money as a startup. No matter how educated you are or how smartly you've put together your business plan, the statistics are ominous for even the most capable of entrepreneurs. One possible way to offset some of the risk your new business venture takes on is taking a loan out in your own name, rather than through the business itself. A personal loan can provide your business the lift it needs in capital, without some of the hazards associated with other types of borrowing.
Your Business Doesn't Become Collateral
When you take out a secured business loan, the assets of your company then become collateral, which you could lose if you default on your loan. Even if your loan isn't secured, a creditor may collect on a defaulted loan through litigation, which could very easily put your company out of business. Failure to make even one payment on your business loan impairs your company's financial flexibility, including lowering its credit score, and quite possibly raising the interest rates of existing loans. Those are big blows for any new company to absorb, but these risks can be mitigated, for the most part, when the entrepreneur relies on a personal loan, rather than a business loan.
The Purpose Of The Loan Isn't Predetermined
While the range and sources of small business loans are vast, they usually require you to clearly define the purpose of the loan, and for many in business, that's very restrictive. For example, your business may need a cash infusion for a number of reasons, including just to get off the ground. Applying for a personal loan means not having to define your financial needs and goals the same way that you would for a business loan.
Your Approval Process Should Be Quick And Painless
Generally, there are fewer hoops to jump through when you apply for a personal loan, and that can fast-track your startup intentions. If you've done all the research on your market, customer acquisition costs, competition, and operating procedures, a quick approval will keep the spring in your step and your business plan on schedule. Secured loans call for lengthy valuations (of the collateral), leaving your business without the money it needs to move forward, and that stagnation can derail your plan for success.
You Can Get Your Money Sooner Than With A Business Loan
Most especially if your need for funding is urgent, you don't want to be left waiting around for months to get your money; however, applying for small business loans usually results in just that: waiting. So long as you have a solid business plan in place, with the loan money ear-marked for practical purposes that generate momentum for your startup, the personal loan will be put to good use, only without the endless wait that comes with having your business dissected and scrutinized by lenders. When it's just you they're analyzing, the money should be made available to you nearly as soon as you need it.
The Business Won't Carry The Debt
As your small business grows, you're likely to need more capital, but that increases the burden of debt you carry, which can really weigh a business down. Starting out with a loan taken out in your name means that debt is your sole responsibility and not a reflection of your company's financial health. A new company tends to demand a lot of cash, eating into precious profits, which is why so many companies rely on loans for survival—because they can't afford to have more money going out than coming in. This means you can expect your startup to accumulate debt over time, although hopefully not so much that it tips the profitability scales. Rather than adding to that nearly inevitable debt and leaving your company perched on a precarious debt-to-income ratio, start it out with a clean slate by taking the necessary loan(s) out in your name.
Repaying Your Personal Loan Builds Your Personal Credit Score
Whether you repay your personal loan through the profits of your blossoming business or your regular, nine-to-five employment, that repayment process will strengthen your credit score, preserving your long-term financial options. You might apply for another similar loan later on, either for yourself or the company, with the previous repaid loan as a shining example of your reliability to the lenders. Eventually, it's probably a good idea to secure loans through the business itself, but keeping both options open indefinitely puts you in the driver's seat in terms of long-term financial sustainability.
With statistics putting your potential success as a small business owner on tenuous ground, you have to be creative and resourceful in forging the foundation your company is built on. Take every advantage you can get, including possibly funding your venture with a personal loan you assume responsibility for, rather than your up-and-coming company.
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