New businesses face some major challenges in raising finances to keep their operations running or to expand. One of the main challenges is that some lenders are not willing to extend credit facilities to startups, as they do not want to risk lending to unproven enterprises without any working history.
The new business owner then has to go to friends or family members for loans, or seek Venture Capital (VC) funding; unfortunately, these options may not be accessible to some business owners. Nevertheless, as an owner of a new business, you have another avenue you can explore: getting a personal loan for business use. Personal loans depend on your own creditworthiness, and not that of your new business. As such, you can easily obtain them.
You can use the following steps to get a personal loan for business:
1. Identify why you need the loan
You should ask yourself the reason why you need the loan, as lenders will also ask you the same question. Normally, the following are the reasons you may seek a loan:
* To establish your business
* To take care of daily operations
* To expand your enterprise
* To have a fallback or safety cushion
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2. Find the appropriate loan for your case
The reason for seeking a loan will determine the type of loan you will apply for. For example, if you are establishing your business, you can hardly get a loan from most of the lenders in the first year, as the business lacks the cash flow to support repayment, which the lenders require. You may have to get loans from friends and family, get a personal loan, or go for crowdfunding. For an existing venture, you have several options, such as term loans and invoice factoring.
3. Choose the best lender for you
You can obtain a personal loan for business use from various sources like non-profit microlenders, banks, online lenders, and so on. You need to compare the cost and terms of payment of the various loans when picking the lender. Also, consider other factors, like whether you can offer collateral, how fast you need the cash, and if you have a good credit rating.
4. Check if you qualify for the loan
You need to find out if you qualify for the loans, which is determined by the following:
Credit score- The position you occupy on the credit spectrum determines which loans you qualify for. You can get your credit score from the major credit reference bureaus. Fortunately, you can increase your chances of getting loans from lenders by improving your credit score, which you can do so by using the services of professional agents who use your tradelines (credit accounts) to do so. You can get such services from www.boostcredit101.com and have a greater chance of better scores and thus a higher probability of approval of your loan.
The duration you have been doing business- Besides credit score, lenders consider how long you have been in business. You need to have been operational for at least a year to qualify for most of the loans, especially from banks.
Ability to repay the loan- You should carefully consider your cash flow and assess how much you can comfortably put toward loan repayment each month. Some financial experts advise that to comfortably repay your loan, your monthly income should be 1.25 times your expenses, with the repayment amount included.
5. Put together your documents and apply
Having considered the various options available, go ahead and apply for the loan that will satisfy your needs—and the one that you qualify for. Some of the documents that you need to submit as you apply, which may vary from lender to lender, include:
* Tax returns documents—both personal and for your business
* Your personal and business bank statements
* The financial statements for your business
* The business’s legal documents, such as articles of association and certificate of incorporation
Conclusion
To get a personal loan for business use, you need to specify the reason for your loan, choose the best lender, identify the best loan for you, evaluate your eligibility for the loan, and then prepare the necessary documents to submit with your application.
