Getting a Business Loan Using Personal Credit

Starting a business is a noble endeavor pursued by countless Americans each year. Unfortunately, it’s an expensive undertaking that causes most to seek a business loan to cover the unexpected expenses. For fledgling businesses, securing financing is not easy, but there are options available.

Business Loans

You can walk into any financial institution and find a department to handle the processing of your business loan. You’ll also find that business lenders require proof you’ve been in business and generating cash flows for a specified period. Once your business is up and running, securing a business loan or line of credit for operating and expansion expenses is a good option. In the beginning, however, it’s not an option at all.

Small Business Administration (SBA) Loans

The Small Business Administration is a government organization that funds businesses in the early stages of development. To qualify for an SBA business loan, you must prove you’ve done your research on the industry and found a viable customer base for your product or service. You’ll need a marketing plan, business plan and projection of income for the next seven years. If you plan to start a business in the same industry you’ve worked in for the last 20 years, you have a better shot at approval than a long time stockbroker looking to open a bakery.

Personal Loans

The most common method of funding your business is to obtain a personal loan for your business expenses. Some people try to use their personal credit cards for business expenses, while others take equity from their home to cover costs. You can outright get a personal loan for your business, but you must be careful in the way you do it.

For example, it’s inadvisable to walk into your bank and say you want to apply for a personal loan to start a business. For some financial institutions, it’s an automatic decline because you’re really applying for a business loan, not a personal loan. Other companies may view your request as high risk because there’s no guarantee you’ll make enough at the new business to repay the loan, especially if you quit your existing job.

By no means should you lie to your bank about the purpose of your loan when asked, but consider your words and the nuances of what you say. While you may be starting a business, are you really leaving your current job to work at it full-time? Or are you investing in a business opportunity in addition to your current employment. The difference is slight, but there is a difference. If you have a good relationship with your lender, talk openly about your plans and find out what lending options the bank has available for your situation.

Whichever route you go for your business loan, the point is to not get so bogged down in the details that you forget to start the business. The more you work at your business venture, the more options will become available to you.

When you need a business loan to pay for new business expenses, it’s difficult to get what you need. Rather than focusing on a specific kind of business loan, explore your options and use whatever’s available to you.

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