How do you know when it is okay to take a Small Personal Loan for business use? Most small businesses will never need any loans, but sometimes they need a loan to stay afloat.
The answer is: If your business is struggling, and it’s the only way out of debt, then small personal loans will keep your business going until you can find funding elsewhere.
What is a Business Loan
A business loan is a loan that is given for the purpose of running or developing a business. It is a type of unsecured loan used by small businesses to finance their everyday expenses. This can be difficult since many banks are reluctant to offer credit to smaller businesses.
On the other hand, using a business loan can be beneficial, as they generally come with lower interest rates and better terms than loans offered to individuals.
However, you will need to be able to demonstrate a genuine need for this type of loans such as a lack of working capital or an immediate requirement for purchasing equipment.
What are Personal Loans
A personal loan may just be the most versatile financial product you can get. Personal loans are great if you need money to start a business, remodel your home, pay for education or consolidate debt.
Personal loans are similar to mortgages, auto loans, and credit card debt in that all four types of debt require monthly payments.
However, personal loan interest rates tend to be higher than mortgages and lower than auto and credit card rates. Personal loans are best for people with good excellent credit.
5 Pros and Cons of a personal loan?
5 Pros of Personal Loans
- Very easy to apply for
- Small personal loans and payment is within 24 hours
- Comes with no collateral
- Saves time, energy, and resources to apply
- Easy to see lenders that give such loan in Kenya
Cons of Personal Loans
- Comes with high-Interest Charges. Carries fees and Penalties if you default.
- Inability to pay leads to Credit damage
- Depends on your credit history
- Since it is easy to get, it might result in unnecessary debt.
5 Considerations in which Small Personal Loans can be used for Business Purposes
A small personal loan is a versatile loan option that can be used for almost anything you want. A personal loan, also known as an unsecured loan, does not require collateral to be secured against the loan. The consideration to use it for business purposes includes:
1. When you need a small loan
If you are a young entrepreneur in need of a small loan, there are certain things to look out for. It’s not easy to get a small business loan when you have spotty credit.
Having bad credit means that hardly any banks will loan to you. This is why you need to take these steps if you want to secure the money you need for your business.
So you take a Small Personal Loan when you need a small loan to offset an amount for an item pending the exact time to make money to pay back.
2. When you need a small personal loan in a period of time and prepayment
When you need a small personal loan, focus on the faster and shorter-term loans. They are specifically created to meet your needs and are fast to obtain too.
You don’t have to waste time with the long process of getting a loan in other cases. Not being able to get one due to various factors may be a problem for some, but not anymore.
The latter type of loans are those that are easy and quick to obtain for people who need a little money in their pockets for things such as paying bills, medical expenses, and so forth.
3. When you are asked to bring collateral for a business loan
A small personal loan is a short-term contract, and this is at a time period of 14 days without any collateral. Therefore, the loan agreement is concluded within a period of 2 weeks. It is one of the fastest types of loans that help borrowers to solve financial problems.
At the same time, it is not only easier but also faster than traditional loans which take several months to be approved and involve many other procedures and collateral
4. When your need is urgent
Have you ever wondered when you need a small personal loan in a period of urgent need? What is the meaning of small personal loans for urgent needs?
A personal loan is a capital you borrow from a financial institution without using any asset as collateral. This loan is usually from Ksh 1,000 – Ksh. 35,000+. The fund I used for various purposes but especially for urgent needs.
5. When there are no other options available
Have you been rejected by all other lenders, assuming that you will never get a business loan?
Small business loans are not always easy to come by.
In fact, many startups and small businesses have a hard time getting bank loans because they don’t qualify under traditional lending guidelines.
Understanding Small Personal Loans for Business Use
When you are starting out, you don’t need to have a lot of money to invest in your business. Taking out small personal loans is a good way to obtain business funds without risking your own cash flow as well as taking on significant debt.
Smaller personal loans in Kenya can range from Ksh. 1,000 to Ksh. 3,000 or more, depending on the type of business and your personal credit score.
You can get approved for these loans by filling out an online application and then sending in proof of income and bank account information so lenders can verify that you’ll be able to make monthly payments.
Small Personal Loans for Business Use in Kenya
Small personal loans are a great way to get money quickly without having to fill out a lot of forms or wait weeks for the store to credit your account.
They’re also fairly easy to get approved for, assuming you have enough time in business and your credit score is high enough. T
hat said, there are several reasons a small business owner should keep an open mind about personal loans before deciding it’s the best possible choice.
In what situations are small business personal loans appropriate to take?
There are good reasons to take out a small business personal loan, which includes;
- Saving time and resources
- When there is an emergency fix for the business
- Merging costly credit card balances and financing the business
Why can’t businesses use small personal loans?
Businesses can use small personal loans, but taking such loans for your business can negatively affect your personal finances. Even though you are using the loan for fixing your business, the debt is still in your name.
Most lenders may not extend the loan to you if it looks like you have a lot of debt.
Is it bad to take small loans for your business?
It is not bad to take a small personal loan for your business. Moreover, a personal loan can be a good idea when you use it to reach a financial goal. Goals like:
- Paying down debt
- Boosting the business
- Paying for equipment bought for the business and for so many other reasons.
What do we consider using small personal loans for business?
When you meet with the lender and he is not against you using a personal loan for your business, you can use the fund to:
- Purchase equipment and the payoff for other inventory
- Kick-start your marketing efforts
- Put the funds toward other costs you encounter in the business.
Can I put a small personal loan through my business?
Yes, most lenders offer a reasonable amount of money. Moreover, some small personal loans can:
- Fund a new or existing business for you
- Buy materials for your business and so many other things.
However, before applying for any small personal loan, research and check that the lender doesn’t impose any restrictions for business use.
Note: It will save you resources in the future to read through the loan’s conditions to see what is allowed and what is not allowed.
Do business loans use personal credit?
Yes, business loans can use personal credits. Most lenders before offering you loans, will look at your personal credit history when determining your eligibility for a business loan. However, some lenders will not look at your personal history, so it varies.
Can a business loan pay off personal debt?
Generally, it is not ideal to use business loans to pay off personal debt. Thus the question: Can I use a small business loan to pay a personal debt? You can’t, truly. However, it is practical to use only a business loan for business.
One thing to keep in mind before you borrow a small personal loan for a business is that it can take time to make money. This is not something you can rush, and if you do, it is extremely risky.
If the business doesn’t make money within the allotted time, you could end up defaulting on your loan.
In summary, when it is great to take a small personal loan for business is when in great need or you have looked elsewhere for funds and you couldn’t get one.