The short-term loans are common in acquiring the cash needed to finance a business idea or pay bills for the business. It is important to analyze the personal loan to ensure that it benefits the business through increased money for production. In start-up or development of business, the loans are a suitable way of financing as they are highly accessible by entrepreneurs. The main problem is that the banks are reluctant in offering the money to a business which is short of cash as it requires financial stability in approving the loan.
Money lender requires accessing the ability of an individual to refund the money based on the return from the business. It becomes hard to get a proper backing once a business is experiencing a shortage of cash. Once the banks and other investors decline, a business loan individual tends to use personal loans to finance the startup of the business. It is crucial to identify whether the use of personal loans is an effective way of financing a business. The following are the advantages and disadvantages of using the personal loans in funding the operations of a business.
Advantages Of Using Personal Loans For Business Funding
The entrepreneur is required to consider a personal loan in financing the business due to the few distinct attributes of the loan. First is that personal loan is more secure compared to the small business loan. Money lender considers the business plan and financial statement of the business before offering the SME loan. The evaluation makes some business application for an SME loan to be declined due to a poor financial position or business plan. It is tough for a beginner of a business to convince the money lender to offer a loan to come up with a business. The banks offer SME loans to business that are properly performing making it hard for the startups and business with cash shortage to acquire needed finance.
Personal loans make it easy for those starting a business to get the needed fund to ensure that there is a provision of products and services to the market. It is more convenient for a business owner to get a personal loan rather than SME loan where you want a small amount to develop the business. Second is that personal loans are readily available from different financial institutions in the nation.
An individual can apply for a loan and get the money after 24 hours making it proper for the use of the business. For SME loans the banks take even two weeks to approve the loan which is a long time for a business which is short of cash. Speed is vital in running a small business due to the needs of handling necessary cash flows in the market. The business is expected to pay the operating bills and come up with plans that will ensure that the receivables are collected for a proper amount of money in the business. Lack of money to pay bills is devastating for the business as it becomes hard to ensure the consumers acquire the needed products. Personal loans are essentials in handling the expenses of the business once there is an increase in amount receivables which is paid later by the consumers.
Disadvantages Of Using Personal Loans To Finance A Business
There are several downfalls of using personal loans to finance the operations of a business which require being considered by an entrepreneur. First is the high-interest rate of the loans compared to business loans. In Singapore the personal loans are cheaper than online SME lending requiring the business owner to come up with a plan to analyze the interest loans of different loans. The online SME lending platforms charge at least 12-16% interest per annum which is high for business.
Money lender focuses on ensuring there is the maximization of operations through beneficial interests for loans. Second is the damage to personal credibility once the business cannot pay the loan in time. The business owner is required to control operations in ensuring that the credit score of an individual does not fall. Defaulting of paying a personal loan will lead to problems in life requiring the entrepreneur to ensure that the business can pay the amount at the appropriate time.
Business loans are important as one can declare bankrupt once the company is unable to meet the loan obligations while in personal loan one is not required to declare bankrupt. This will make the money lender acquire personal properties to recover the personal loan amount. It is crucial to ensure that the business can pay the personal loan acquired for operations financing to reduce the cases of loss of personal properties and credit score. Lastly is the maximum limit involved in borrowing of a personal loan which might not be enough for business. The borrowing limit in Singapore for a personal loan is S$ 200,000 while for SME is S$ 500,000.
Alternative Business Funding
It is important for a business to identify other techniques of funding apart from personal loans and SME loans. The use of personal loans is effective for individuals with a good credit score that will increase the amount of money laddered to the entrepreneur. A person is usually uncomfortable to pay a personal loan for a business that is less profitable.
The use of personal loans is highly risky to an individual as it directly affects the personal life performance. It is essential to identify money lenders that such as banks and investors that are willing to support the small business sector.
The common sources of funding platform are crowdfunding websites for entrepreneurs where individuals can acquire required money to start and develop a business. The crowdfunding platforms include Funding Societies, Kick Starter, GoGetFunding and FundedHere which offer capital for business.
The capital is in the form of equity, donations, pre-purchase or loans that will assist in meeting the daily process of business. An entrepreneur is required to evaluate the available funding options in the market to use the most effective one that will grow the business.