When it comes to financing your business – whether a small expense or a big expense – you often prefer taking out a business loan. Majority of borrowers rely on these loans as they think that they need money for business and therefore a lender will not sign off on a deal apart from this.
The rule of thumb says that you should take out a loan after evaluating your need and purpose. Of course, small loans like payday loans and no credit check loans cannot work out as they allow for little disbursal limit. How about personal loans for bad credit? These loans come with larger disbursal limit and allow you to repay in instalments. Before you make any decision, you should know how personal loans are different from business loans. You can take out personal loans for bad credit from British Lenders in London, UK.
How business loans work
Business loans mainly aim at those borrowers who need funds strictly for businesses. Whether you need money for hiring staff, buying equipment, relocating your business, opening a new branch, outsourcing your service and renovating your office, you can take out a business loan.
Before approving your loan application, a lender will look over your company’s cash flow history and a business credit score. Since the disbursal amount is higher than any other loan, a lender will carefully examine all factors to determine your creditworthiness. You can borrow money based on the reputation of your company. The rejection rate of a business loan is higher than any other unsecured loans.
The business loan application procedure is not as simple and straightforward as other online loans. It includes a lot of documents that the lender peruses to examine the risk in lending you money. Factors that determine whether an online lender will approve your business loan application include your personal credit history your business credit score, cash flows, time in business, profits, industry and annual revenue. In addition, you are likely to be asked to submit collateral in some cases.
Securing a business loan is not easy especially if you are an owner of a start-up company, and if a lender does so, interest rates and the amount of collateral are likely to be very high. Make sure that you will be able to pay back the debt, otherwise, you will end up losing your security.
How personal loans work
As the name suggests, you can take out personal loans to finance any small or big personal expense such as renovating your home, buying a car, wedding, medical expenses, paying off other debts and so on, but you can also use these loans to finance your business. It is completely up to you how you will use these funds.
As you put in a loan application, a lender will look over your income statement and credit score to determine whether it is worth lending you money or not. The repayment period and interest rates will be decided after taking into account your credit standing. One of the biggest benefits of applying for these loans is they do not require you to submit collateral and you can get money despite poor credit rating.
If your credit score is less-than-perfect, you will get the loan at a high-interest rate, but it will not have any impact on instalment feature. Once you get money in your account, you will start paying off the debt in equal monthly instalments. The amount you borrow can be lower than what you quote as the lender will decide on the disbursal limit after considering your networth.
Compared to business loans, personal loans carry lower interest rates and do not ask for security. If you make any default on a business loan, your lender can detain your business asset and liquidate it to recover money. If you make a default on a personal loan, you will end up paying interest penalties and late payment fees.
When should you apply for business loans?
Since each loan application leaves hard inquiries on your report, make sure that you are applying for a small business loan only when you are certain that the lender will not turn down your application. If you are looking forward to applying for a business loan, make sure that you have a stellar credit history, your business is at least two-years-old and it has been making profits, you have a specific need of your business and you are certain that you will reimburse the debt on time.
When should you take out personal loans for your business need?
Of course, you will not be able to take out a business loan when you have an impaired credit standing. Personal loans are the best option when you need a small amount and you do not have a specific plan to use that money for your business. If you cannot afford collateral, you should go for these loans.
In the nutshell, you can use personal loans to fund your business needs but only when you do not need a very big amount.