Opinions that are expressed by entrepreneurs are their own.
The use of a personal loan for your company seems to be a quick solution to get the money you need. As a business owner, you would like to ensure that your company has enough funds to grow and be successful. But you have to know the risks of the mixing of personal and business finances.
Many business owners choose personal loans because they are easier to get, especially for new companies. If you apply for a personal loan, the lenders look at their creditworthiness, their credit history, income and their personal debts to decide whether they qualify.
In contrast to business loans, she does not check her business credit, her cash flow, the annual income or business debt. If you have a good personal credit, a steady income and a manageable level of debt, you will probably be approved for a personal loan. This makes personal loans attractive for business owners who do not receive traditional business loans. However, these loans come with disadvantages.
You can receive personal loans from banks and online creditors. These loans often do not need any collateral, which makes them more accessible than SBA loans (small business administration) or standard bank loans.
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Business loans against personal loans: what is better?
Your creditworthiness plays a major role in choosing between business and personal loans. Personal loans are displayed in your personal credit and influence your creditworthiness. Paying on time helps your loan, but missed payments have affected it. Taking personal debts for the business could also make it more difficult to receive other loans later.
Personal loans always require a personal guarantee. This means that you are personally responsible if you cannot repay the loan. Even without collateral, lenders can take legal action if they are in arrears. Some business loans also need personal guarantees, but not all of them.
To choose the right loan, you can see both the risks and the services. Think of the financial dangers. For example, if you use an equity line for your company, your house is in danger if the company fails. Most new companies close within five years – can you continue to pay the loan if your company does not work?
When should you consider a personal loan for business
If you receive a business loan with good conditions, this is usually the better choice. Business loans keep your personal and business money separately and can offer tax breaks for interest. They also limit their personal risk. But sometimes personal loans are the only option.
You may have to think about a personal loan if:
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Your business is new and has not existed for two years, which makes it difficult to get business loans
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Your business does not earn enough money or sales have recently decreased
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They conduct a company that lenders consider as risky (such as multi -stage marketing, weapons sales, alcohol sales or cannabis).
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You want to avoid inexpensive business loans and need cheaper options
Most economic loans do not clearly show their true costs. Some calculate very high prices. Personal loans often cost less than company financing options.
Business loans can burden their cash flow with frequent payments – sometimes daily or weekly. Personal loans adhere to monthly payments that are easier to manage.
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Is it easier to get a business loan or a personal loan?
The approval for a personal loan depends on two most important things:
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Your creditworthiness
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How much money does she earn
With good credit and steady income, you can get a personal loan without any major problems.
For business loans, lenders check:
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How much money does your business earn
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Your personal and business loan
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How long are you in the shop?
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What kind of business you operate (some companies face more limits)
To get a business loan, you need bank information that show your business income. Opening a commercial bank account helps if you don't have any. Traditional bank loans and SBA credit require more paperwork such as business plans, tax forms and financial reports. These loans take weeks or months. Online creditors move faster and often choose within days.
Good and bad points when using personal business loans
Good points:
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Simple documents: Personal loans need fewer documents than business loans
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Fast money: you get faster money with personal loans
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No business loan requires: Belongs check your personal credit instead
Bad points
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Personal risk: You are responsible for the debts and missed payments affect your credit
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Higher prices: Personal loans often cost more than secure business loans
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Lower loan amounts: You cannot take out as much loans in business loans
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No business loan: Personal loans do not help to build up your business loan score
If personal loans make sense (and if you don't)
When can a personal loan be used:
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New companies that need small amounts: starting companies can often not receive business loans
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Fast projects with clear returns: If you know that you can pay back the loan soon
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Business owners without business loans: Personal loans could be their only choice
When should you avoid a personal loan?
Big investments: Personal loans rarely cover large business projects that need a lot of money
High-risk company: If you are not sure whether you pay back the loan, do not risk your personal assets
If there are other financing options: First examine business loans, grants or other funds.
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Other factors to be taken into account
Legal considerations:
Many lenders do not have personal loans use for business loans. Breaking these rules can lead to money problems.
Tax considerations:
You cannot deduct personal loan interest for your taxes. Business loan interest is often considered a tax depreciation if they are used for business.
Cost management:
The use of personal money for companies makes the tracing costs difficult. This can cause problems if they are checked.
Personal loans give you quick money, but you are risky. Business loans and other financing selection work better for most companies. Take a look at all of your options and think about long -term effects before taking debts.