The dream of starting a business is something that many people share. Whether it be the next big thing in the NFT space or a local mom and pop restaurant, one thing remains the same across the board: it takes money to make money.
If you’re ready to take action, now’s the time to turn your attention to the costs associated with starting a business. Most importantly, you must decide how much money you need to get your new company off the ground. That allows you to determine what to do next, which may entail borrowing money or using funds that you have already saved.
A small personal loan is one of the best ways to secure the money you need to follow your dream of starting and owning a business. Should you agree, here are some of the many questions you should answer. Doing so will help you decide what to do next.
- How much money do you need to borrow?
If you need to borrow hundreds of thousands of dollars to start a business, a personal loan isn’t what you’re looking for. In most cases, a personal loan is a loan in the $100k or less range. Knowing how much you need to borrow allows you to decide if a personal loan makes sense.
- What is your credit score?
Check on your credit score and credit history before you apply for a personal loan. Doing so will ensure that you have a firm grasp of your financial circumstances. It also tells you if you’re likely to qualify.
Remember, if you don’t have a strong credit score and history you’re unlikely to get approved. This is due to the fact that a personal loan is unsecured. Your lender is taking on all the risk, so they want to make sure that you have a history of making on time payments.
- Do you have the means to pay back the loan?
Don’t take out a personal loan if you don’t have the means to pay it back. Doing so is only going to result in trouble down the road. It’s essential that you have a plan in place for paying the money back in full, on time, and based on the terms and conditions of your agreement with the bank.
For instance, if you’re quitting your current job to start a business, you need another source of income to pay your loan back. You can’t rely on the fact that you’ll generate enough income from your new business to make full and timely payments.
- What term are you interested in?
Most banks offer personal loans in the range of 12 to 84 months. A lower term allows you to pay off the loan sooner. It also positions you to secure the lowest possible interest rate. It also leaves you with a larger down payment.
A longer term is often better because it gives you a smaller monthly payment, and that may be helpful when you’re getting your business off the ground.
Ask your loan officer to provide information on all available terms. You can then compare the finer details to decide which one best suits your current financial situation and future.
- What are your other options?
A personal loan isn’t the only place to turn for funds to start a business. You should look into other options such as a home equity loan, home equity line of credit, or business credit card. Just the same as a personal loan, there are pros and cons associated with all of these.
Take as much time as necessary to compare the finer details of all your options. You’re making a big change in your life, so you don’t want to put unnecessary stress on yourself by choosing the wrong type of loan. That’s not what you need when starting a business.
Now that you have answered all these questions, you can more confidently decide if you should use a personal loan to follow your dream. There’s no shortage of benefits, so this may be just what you’ve been searching for.
What makes a personal loan a good choice in your eyes? Are there any risks associated with this financial product?