Business Loan, Personal Loan, or Startup Loan: Which Product is Good for Your Startup?
The idea of starting and running a small business is rousing until you realize money is a scarce resource and you’ll need financial back up from time to time.
Borrowing is no easy feat if you’re company is a startup— chances are even slimmer with banks and traditional lenders who use certain criteria that your new firm many not meet.
As a result, many entrepreneurs turn to personal loans. But not all types can be used for commercial purposes, which is where the dilemma comes.
So where should you search for funding if you’re business is relatively new? Here’s everything you should know;
Business loan
Your startup doesn’t stand a chance when it comes to business loans because it won’t meet the underwriting criteria for most legacy lenders.
The underwriting process for such loans involve a credit pull and a background check which most startups fail because they haven’t been in business long enough.
Still, you can apply for business loans for startups. Many lenders check for the practicality of your business plan and your cashflow vision during underwriting.
Though business loans involve certain criteria and requirements that you may not meet, there are some pros to choosing the option.
- They have a larger borrowing cap or limit compared to personal loans.
- They are tailored particularly for business use, and you can choose between the various forms including MCAs or invoice financing.
- Lenders often do a follow-up and provide guidance on how to utilize these funds, which makes it an excellent choice if you’re a newbie. Finance providers don’t care about how you spend a personal loan.
- Starting with a business loan gives you a chance to begin establishing your credit history, increasing your chances of success in future.
Personal loan
Personal loans are meant to help you weather your domestic problems and some lenders are keen to ensure you do not use the amount for commercial purposes.
Punishments for going against the terms may be as thorough as a cancelled loan and immediate repayment.
Still, you have a big advantage if a finance provider doesn’t care how you spend your personal loan. It means you get commercial funding without undergoing a credit pull or background check.
Apart from ease of access, here are other personal loan features to consider
- Because it is registered under your name, you, the entrepreneur (and not your business) becomes liable for the loan. Failure to pay impacts your personal credit.
- They have a lower borrowing limit or cap compared to business loans.
- Providers offer NO support as part of their after-service, unlike business loans providers who do a thorough follow-up.
More Options, (A startup loan)
A startup loan may be the right pick for your business. These are government-sponsored personal loans accessible by entrepreneurs looking to start a business.
Providers do a personal credit pull, check whether you can afford the requested amount, go through your business plan and analyze your cashflow vision during underwriting.