Pros and Cons of using a Personal Loan to Grow your Business
Is It a good Idea to use personal loans for financing a business? According to most industry experts, it depends on various factors that include the financial stability of your business and the state of your personal finances. When it comes to financing a growing business firm, time-tested methods like taking a business loan are unavailable to most entrepreneurs. This is mainly because issuing a business loan requires relevant documentation pertaining to your business and, more importantly, a very stringent eligibility criteria. Most growing businesses may not stable enough to reap the benefits of a business loan. In such cases, it becomes imperative to look for other means of funding your business so that your entrepreneurial dream does not end in disappointment.
Personal loans are an excellent way of providing your budding business with the financial push it needs to acquire a secure standing in the industry. Even if your business is offered a business loan, chances are, due to its nascent stage, you will have to deal with extremely high rates of interest. This is why it is highly advisable to consider funding your growing business with a personal loan, since it has lower interest rates than you may be eligible for via a business loan. Although it is usually said that it’s not a good idea to mix personal finances with business finances, there are some occasions when taking a personal loan to grow your business makes the most sense. However, this does not mean that personal loans have no downsides. You can always check your Personal Loan Eligibility online anytime.
Cover all your Bases before you Issue a Personal Loan for your Growing Business
Here are a few pros and cons of using a personal loan to grow your business that will help you make an informed decision:
Pro: You will run a tighter ship when your personal finances are on the line
If you take a personal loan, you will have a much greater sense of duty and responsibility towards your business. This diligence is bound to pay off in a good way. You will think twice before making any business decision, which is the key to better planning and implementation of your goals.
Con: There is a risk of going bankrupt or incurring too much personal debt
Growing businesses are usually unstable in terms of financial returns. There is always a chance that your business might go under, forcing you to either file for personal bankruptcy or spending a large part of your life paying off the loan amount with interest.
Pro: It’s your business, and so is your money
Sometimes, the idea of having complete control over your business, in terms of both management and financing, can make a huge difference in the overall outcome of the project. It can provide you with the inspiration and willpower to drive your growing business to greater heights.
Con: The personal loan might prove insufficient
There comes a time in the lifecycle of a growing businesses when it receives an order or project that is too much of a financial burden on the company’s current budget. Even if you take a personal loan, it might prove insufficient since the highest amount you can apply for is usually Rs.25 lakhs.
Pro: Personal loans are unsecured, short-term, and much easier to acquire
An extremely valuable benefit of personal loans is that they eliminate the need to put up any of your personal property as collateral just to avail the loan. Also, since they are short-term loans, they tend to keep your accounting books from getting overly complex. Additionally, personal loans require a CIBIL Score of at least 640, which is not very difficult to attain.