Know the Pros and Cons of Getting a Personal Loan for Your New Business
One of the most difficult issues which arise when you start a new business is getting money. It is one of the biggest roadblocks that you might face during your business journey.
After the creation of a roadmap for the business, financing is the most important element that you require.
Most banks and traditional financing institutions are bound by rules. These rules do not allow them to lend money to small or new businesses without greater backing. However, in such a situation, a personal loan for a new business could be the best option for you.
If your options like banks, investors, community finance institutions or capitalists have failed, you could turn to a personal loan for a new business. It is often unlikely that personal loan lenders check how you will spend your money.
However, make sure that you read the fine print so that you could know the prohibitions on the purpose of your business. There are multiple benefits of availing personal loan for a new business.
Benefits of personal loans for new businesses
1. Guidance
One of the best benefits of getting a personal loan for a new business is that they guide you through the process far better than traditional financing institutions. It is not easy for new or small business owners to get loans without great financial backing.
One of the major things which a new business owner face is confusion while navigating through the loan process.
Lenders who provide personal loans get you the loan on mostly your terms. They also guide you well with their expertise. With Piramal Finance’s Personal Loans, you get a team of expert advisors. They guide you through the application process ensuring no hiccups in your journey.
2. Lower credit requirement
Traditional finance institutions like banks etc do not provide loans to people or businesses with a lower credit score. If you have a lower credit score, then it is almost sure that your loan for a new business will be declined.
As opposed to this, you can get a personal loan even with a lower credit score. Personal loan lenders do not fuss about a higher score. They also work with people with lower credit scores. You can also negotiate the terms and conditions of the loans even with a low credit score.
3. Easier qualification process
The approval process for most personal loans is comparatively easier than traditional financing methods. All your lender needs to know is your credit score and income. There are likely fewer questions about the prospects and finance of your business.
You don’t need to come up with an extensive plan of business or documentation to present to the lender.
4. Fast approvals
There are numerous steps and documentation required to get a traditional loan. If you want to get faster approval for your business, then a personal loan is the best choice you can make. It does not take a long time to get a personal loan approved. It also gives easy access to the amount in lesser time. Personal loans could be disbursed within days. So if you need finance quickly, then personal loans are the way to go.
5. No collateral is required
Personal loans do not require you to provide any collateral as a security. This also makes it desirable.
If you are choosing a personal loan for a new business, you have to know about all the risks along with the advantages to make an informed choice.
Disadvantages of using a personal loan for new business
1. Risking personal credit
Taking out a personal loan for a new business could also put your credit score on the line. In the worst-case scenario, if the business fails or you fail to repay the loan, your credit score could decline beyond repair. It also increases the chances of rejection while getting finance in other forms in future.
Also, personal loans increase the ratio of your debt-to-income ratio. This makes it difficult to qualify for getting loans for assets, mortgages or credit cards.
2. Limited borrowing in personal loans
The maximum amount of personal loans depends entirely on the lenders. It depends on various factors on the lender’s and your part. Also, according to rules and regulations by Government, the maximum amount limited by most banks and NBFCs is Rs 25 lakh.
You might have to search for a lender willing to lend you the amount you need for starting your new business.
3. Risking personal assets
Not all personal loan lenders demand a guarantee of personal assets. However, to get a secured personal loan, you might have to give some type of collateral for giving a personal loan for a new business.
It poses the risk of your collateral being seized in case of your inability to repay the loan according to the terms.
4. Possible higher interest rates
Everything about personal loans depends on the lenders. So you might have to pay a higher interest rate. Your credit score changes how high your interest rate will be. And most personal lenders decide to lend to those with higher scores. If you have a lower credit score, you might have to pay higher interest rates against the loan.
So, the question arises whether you should get a personal loan for a new business.
A personal loan is a sure way to get the finance you need with less formality. It takes less time to get a personal loan and the paperwork is fairly easy. Nevertheless, it does not come risk-free. There are risks embedded in availing of a personal loan.
Thus, it is important to ensure that you find a lender that offers you the best terms and conditions. It ensures that you pay reasonable interest and there are no hidden risks.
For this, you can get a hassle-free and quick personal loan for your new business with Piramal Finance personal loans. Piramal personal loans offer zero pre-payment and foreclosure charges. With Piramal Finance’s personal loans you can start your business in no time and without the stressful paperwork. Along with this, you get a dedicated team of experts dealing with your issues and guiding you through the process of availing of the loan.