Choosing a personal loan for your startup can be difficult, especially as various personal loans have pros and cons. However, the following tips should be able to help you receive some form of clarity:
How much money do you really need?
Without a doubt, this should be the first thing you consider when sifting between loans. There are lenders who are only willing to work with you based on the amount of capital you need. For example, some traditional lenders will not issue a small business loan if all you need is $5000. You will need to make a detailed report of what you’ll be spending money on before you can determine this, so make sure that you’ve got your facts straight.
How quickly do you need to access these funds?
There are loans which are structured as installment loans, such as the loan you got for your mortgage or car. Basically this means that as soon as you get a loan approval, you’ll get the finds in a lump sum through financing. You’ll have to pay the loan back in installments.
Paying back a loan is tough and that may include things like interest rate charges and other fees as well. However, you’ll have the entire amount that has been approved at your disposal.
Other loans make use of lines of credit and this means that you’re not given a predetermined amount. However, you get to choose how much you want to borrow, even though there’s a limit. The line of credit is replenished once you begin paying back.
What do you need the loan for?
One of the major factors that will determine the decision of lenders will be what your startup plans to use the loan for. For instance, startups majorly use a business line of credit in order to purchase equipment, make their payroll, or embark on a major marketing campaign.
If you seek cash from a VC or an angel investor, they will be more inclined to work with businesses that they are familiar with.
By determining what you need the money for, you’ll be able to find lenders that will be more inclined to work specifically for your industry or purpose.
How long have you been in business?
As a startup, you’ve still got stages of business existence. If your startup is in its very early stages, securing a loan from traditional lenders like banks might be difficult due to the fact that they require positive credit history, a business plan, collateral, cash flow projections, etc. This means that certain loans might not be accessible to you and even if they are, you might not like the loan conditions.
Do you have any collateral?
Even though you’re a startup, do you have ay for of property or inventory that you can put up against the loan as collateral? If you don’t, there are certain loans that you won’t even qualify for. Instead, you might have to branch out and look at certain alternative funding and loaning options.