July 26, 2023
- Olsen Breet
- February 11, 2021
Personal loans are known to provide financial support during a time of crisis for an individual. We hardly associate to with meeting the business requirement since the owner and business are considered two different entities. Nevertheless, it is a good solution to the short-term financial instability the business may encounter.
The application process of a personal loan is much simpler than a business loan. You don’t need to submit a business plan, profit forecast, or past financial statement. Nevertheless, your personal credit history and financial status determine the approval and interest rates.
The idea has its benefits and drawbacks. But in this blog, we will focus on the positive with 7 reasons to take a personal loan for the business.
Lower interest rates
Borrowers with near-perfect credit ratings and regular income are the favorite of the lenders. They are offered better interest rates at favorable terms as the profile is less risky. Thus, you can expect a lower interest rate than the business loans based on your profile.
Many freelancers and sole traders take a personal loan to start their endeavor. You will find lenders offering quick loans to the unemployed through the online application process. The installments are manageable, and the approval rate is extremely high compared to the business loans.
Instant access to funds
A sudden cash crunch requires instant access to funds. You cannot wait for the lengthy business loan process that may take weeks to get approval. The personal loans from direct lenders take few minutes for approval and 24 hours to disburse funds.
The local branches of banks don’t have the authority to sign a bigger loan amount. The application is sent to the central credit control department for document verification and decision. It makes no sense to wait for approval when there is an urgent need for money.
Business loans have a stringent policy and eligibility criterion for the applicants. You cannot argue over the rejection even with a great business plan. Nevertheless, there is no intimidating requirement other than repaying ability that factors in the personal loan.
Even if you don’t meet the eligibility, there is an option to get a co-signor for the loan. You will get better interest rates if the guarantor has a good credit history and regular income. You can still get a personal loan without a guarantor in the UK if there is no concern for slightly high-interest rates.
The installments are more manageable for personal loans, as there is an element of flexibility. You can select a longer tenure to reduce the stress of installments. However, the cost of the loan will increase with its term.
Many lenders offer repayment holidays to their borrowers without any extra charges. Missing payments in business loan repayment mean you must pay some fine to the lender. Also, there is an option to extend the terms of the installments get challenging to manage.
You don’t need to attach collateral with the loan if the lender is assured of repayment. They expect healthy credit ratings with enough income to support the installments. On the other hand, business loans require collateral if you are availing a larger amount.
Use your family or friends as guarantors to avoid the need for collateral. You can contact a direct lender if you don’t have collateral or good credit history. They consider regular income and affordability while assessing your financial condition.
No specific purpose
You don’t have to explain the purpose of the loan to the lender to avail yourself a personal loan. They are for the purpose that is sometimes too personal to share. Only the credentials will determine the approval, not the purpose of the loan.
Business loans are hard to get because they ask and assess the purpose. You cannot grow your business based on your conclusion. You can use the loan amount in whatever manner you want.
The documentation process for a personal loan takes minutes in the present world. There is a very small list of documents required to get a personal loan. Also, you can submit them online to get the loan approved within minutes.
A business loan requires numerous documents for verification and approval. The process can take weeks and many visits to the banks. Some direct lenders provide an online submission, but the interest rates are higher than the banks.
Bigger loan amount
As mentioned above, a business loan may require collateral to get approval from the banks. The value of the collateral will determine the loan amount banks will approve. However, it may not help the cause if you want a more considerable amount.
Personal loans don’t require collateral to get approval for a loan amount. The bank may offer an amount you want if they find it affordable. Therefore, you can get a larger amount in a shorter time with no collateral if you choose a personal loan over a business loan.
To sum up, speed and flexibility are the two significant factors in favor of a personal loan. However, you should consider the other aspects that are often hidden. You are responsible for the repayment, and the personal credit will take a hit in case of missed payments.
Olsen Breet is our in-house Financial Expert at EasyPolicyLoans, with more than a decade of writing for various finance companies in the UK. He has got this knack for turning even the trickiest money matters into something we can get our heads around. Before he started sharing his wisdom here, Olsen was playing with big numbers and advising on loans at a bank. He graduated from University of Glasgow, grabbing a finance degree before jumping into the deep end of the financial pool. Olsen’s our go-to guy for making sense of market trends and is always ahead of the curve.