by Dan Radak | World Executives Digest |
In theory, business loans and personal loans are two completely different things and one can’t replace the other. In practice, however, the line between them is often very thin. For instance, when a startup isn’t eligible for a business loan, the owner needs to go for personal borrowing. However, the money obtained this way requires a special kind of self-discipline and planning, so as not to be wasted on personal needs. The following tips can help you make the business ends meet with a personal loan.
Polish your credit record
When a startup owner wants to apply for a personal loan, the first thing they should do is polish their credit record. This means that you should leave no stone left unturned when it comes to your old debts. For instance, if you’re late with credit card payments or you can’t collect money from your debtors, sort out those issues first. For if you miss any of the loans or liabilites from the past, those skeletons from the closet will ambush you during the loan-acquiring procedure. Consequently, your request will either be turned down or you’ll get a bad loan.
Only once you’ve covered all the unsettled payments should you ask for a free credit score, to check if you can move to the next stage of getting a loan.
Determine the purpose
The most important decision you should make before you get a loan is how you’re going to use it. While it’s clear that it will serve as backup for a certain financial plan, it’s essential that you determine the precise purpose of that loan. For instance, if retailers haven’t paid for your merchandise, you could use this personal loan to make up for their due payments. Similarly, if you don’t have enough assets on your accounts to give your employees their payments, this personal loan can save the day. However, if your business experiences such difficulties with liquidity, it means that have terrible cash flow. Since lack of cash is one of the most common reasons for a business closedown, you need to react at once. For example, offer special discounts on stock goods, speed up the invoicing process and activate some other practical strategies for improving your liquidity. Obtaining more assets from sources other than a loan will free some space for other business maneuvers, where the loan will come in handy.
Compare different lenders
Business people who are considering a personal loan should be even more careful than the people taking a business loan. Because of that, the entire procedure needs to be performed in a detailed way. Firstly, you should compare all the loan packages on the market. Sometimes you’ll find better conditions in other banks than in the one where you have your accounts open. Secondly, it’s always smart to search for innovative alternative lenders. Thanks to the international nature of the Internet, today you can negotiate loan terms with lenders from different parts of the world. For instance, if moving to Sydney, gather information on mortgage solutions in Australia online. On the other hand, people planning to move to Canada can easily contact their lending companies. Sometimes a smaller enterprise that’s more agile on the business market will give you a loan faster than a large enterprise. However, bear in mind that every offer that sounds too good to be true should be taken with a grain of salt. Your common sense and experience will tell you which loans are based on realistic business figures.
To conclude, a personal loan should be used as a business asset only for a short period of time. Also, if you don’t have any backup assets that can cover and repay that loan in the near future, don’t go down that road. Otherwise, you could lose credibility for future loans and put your entire business into a difficult financial situation.
Dan Radak is a marketing professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies.