When you are looking to raise cash to boost your startup business idea or you may be searching for a temporary bridge loan to help pay a business bill. With this situation, you will find yourself needing some extra funding in more than a handful times. However, the problem may be finding a bank that is ready to loan you a small loan for your business.
Finding investors who are prepared to support you may be especially hard to get, and especially for someone who is starting out. It may also be hard when your company may be in need of cash.
In such circumstances, some Singaporeans have been considering taking out personal loans to help fund their startups. However, you need to consider whether this is actually a good and creative way to fund your business. Below, are the benefits and drawbacks for you to consider before taking a personal loan for your business.
Benefits Of Getting Personal Loans For Your Business
It is important for you to recognize the distinct characteristics of a personal loan that may be useful to an upcoming entrepreneur. For starters, it’s easier for you to access this loan type than it is for a business loan. In many occasions, banks need you to have a tangible business plan as well as financial statements ready before you can make an SME loan. However, the issue may be that you don’t have the documents to persuade bank in Singapore if your business is a startup and you are just starting the journey.
On the other hand, banks normally will need your personal information for you to be able to access a personal loan. With such easy access to this loan, the type can prove to be more advantageous for Singaporeans who are beginning their journey than applying for an SME loan or even getting a small amount invested in your business by an angel investor. This is especially useful when all you need is a small cash amount that you will be able to gradually repay after a while in order for you to fully grow your business idea.
Another advantage of the personal loans is that they are readily accessible. Immediately after you have submitted an application, a number of many lenders are able to give you the approval together with the funds in 24 hours. However, banking institutions will take about 2 weeks for them to process your loan request.
Speed may prove to be of a lot of importance as far as operating a small company is concerned. This is particularly true when you have to pay the bills although you also are yet to bring together your receivables.
For most businesses, not being able to pay your bills promptly because of not having ready money on hand could have a devastating impact on the business. This is regardless of whether you know that an even larger amount would be coming in as payment from your clients in the near future.
Pitfalls Of Using Personal Loans For Your Company
Although a personal loan will be helpful to your business in significant ways, it, however, does have its downfalls. For the most part, personal loans are likely to attract higher interest rates compared to many other sources of funding accessible to business owners in Singapore. In particular those loans obtainable from the commercial banks. However, several of the best moneylender personal loans are much cheaper when compared to most of the SME lending online platforms accessible in Singapore. These platforms are likely to charge between 12 to16 percent in interest per year.
Nonetheless, this isn’t the biggest shortcoming of taking out a personal loan to fund your business operations. Instead, the greatest pitfall you need to be cautious of is that as a borrower, you are personally accountable for this debt. That means that when you default on the personal loan you will be hurting your personal credit rating and in addition cause other troubles to your own life. On the contrary small business loans are only made to a company itself; thus defaulting on it can only bankrupt the company, even then it also protects your private property from being held by your money lender.
An additional possible problem is a reality that personal loans generally come with maximum borrowing limits of S$200,000 amount, while the small business loans may be as large amounts as S$500,000.
Alternatives To Personal And SME Loans
When you decide on using a personal loan in funding your growing business can prove to be a wonderful idea for you as a business owner. This is especially true if you have a good credit standing and at the same time, you do not need lots of cash. Otherwise, for a borrower who does not have the capability to easily repay the borrowed sum in case things do not work out, as well as the risk you take of burdening yourself in taking out a loan that may potentially affect your own life could be tremendously large.
In addition, when you can not find banking institutions, legal moneylenders or even angel investors to extend to you a small loan for your business or investment, do not despair. This is since there are other choices for you to source for funding. For starters, there are lots of crowdfunding platforms such as Funding Societies, GoGetFunding, KickStarter and FundedHere. These funding societies are capable of offering you the different types of capital (these can either in the form of loans, donations, pre-purchase, and equity investments) to a certain extent rather quickly.
What matters most at the end of it all is that you take your time to shop around for a suitable moneylender who can offer you the best possible loan facility to meet your financial needs. Do consider a range of different alternatives so that you are able to get the best type of funding with the costs, terms, and structure that works best for you. This will also ensure the continued growth of your business.