Do you have a great idea for a new business or want to take your Toronto store to the next level? You are going to need some cash to get it done, but don’t like the rates you are looking for business loans. Is a personal loan an option? The short answer is yes, but it isn’t always the wisest choice. Read on to learn more about the ups and downs of mixing your money with the company.
The Pros: Fast Money with Fewer Restrictions
A personal loan asks for a variety of easy information like your income, birth date, SIN, and the bank will check your credit score. Generally, you can be approved and receive a check in just a few days. You are given a payment schedule, and the lender does not care where the money is coming from to pay back the loan. Depending on the size of the loan, you may not need to offer any kind of collateral. Finally, it is much easier to be approved for a personal loan.
The Cons: Risking Your Own Credit and Financial Future
Now, let’s look at the downside of a personal loan for business use. A business loan uses the company credit and will improve that score over time. A personal loan puts your personal finances at risk. If your company is unable to repay the loan, it falls on your personal checking account to accomplish that feat. Should the business fail, your own credit may be so badly damaged by that unpaid personal loan that you are unable to get the credit you need to work through those trying times.
The most common reason for business owner’s to apply for a personal loan is that their business loan was rejected. Why would that happen?
Understanding How Lenders Look at Business Loans
When you apply for a business loan, the bank not only checks the company credit score, they also evaluate the stability of the business and its future ability to repay a loan. You must present your business plan to the loan officer along with a strategy for repayment. They will review your current books, operation standards, and history before making a decision. They may request collateral. If the loan is for capital improvements, you may receive installments to ensure that the cash is being applied to its intended purpose.If it sounds like the bank is trying to make a smart decision about whom to lend their money to, you are correct. So, before you decide that a personal loan is the fast and easy way to fund your Toronto business, stop and consider whether you would make that loan to your company. If you are just starting out, a personal loan may be the best of a limited number of options.