5 Questions to Expect When Getting a Personal Loan for a Startup Business
Starting a business is like trying to get up on your own two feet. You need enough capital to be able to ensure that your company can operate and prosper even after some initial hiccups.
Unfortunately, the chances of a startup company to qualify for a loan are quite slim; good thing, though, personal loans for business exist to save the day.
Personal loans focus more on your individual financial history rather than on your business. Although you don’t need collateral for this type of loan, it’s still typical for a lender to ask questions to guarantee that you can repay your loan.
To qualify for financing and bring your business to the next level, make sure you have the answers to the following questions:
1. Where will you use the money?
To say that you’ll use the money for your business is far too vague a response. Your loan should have a clear place in your game plan to achieve the results you want. If you need the loan to purchase a piece of equipment, make sure you have a quote in hand.
The goal is to show the lender that you made an effort to research costs, and you have a specific plan to generate income down the road.
2. How will you afford repayments?
The first concern of the lender would be to get the money back with interest. This is why it’s vital to have a clear picture of the loan structure so that you can ensure timely repayments without affecting your company’s progress. Keep in mind that not only the amount you borrow but also the loan duration and interest rates can affect your monthly payments.
Depending on who your lender is, loan terms are negotiable as long as they are determined before the signing of papers. Also, take the chance to pay off the debt quickly so that you can avoid incurring interest.
Make sure to only borrow what you can afford to repay so that you don’t drown in huge debt.
3. Do you have proof that you’re trustworthy?
Since your company doesn’t have a financial track record yet, the lender will look at your personal credit history. This will help the lender determine whether or not you are reliable enough to make repayments.
Make sure to prepare any of the following to prove your credibility:
- Credit reports
- History of consistent mortgage payments
- Credit accounts in good standing
If you are confident about your credit standing, use that to your advantage and ask for a good interest rate. After all, compared to other borrowers, you will seem a “safe bet” in the eyes of the lender.
4. What will make your startup business successful?
What makes you think that your company will do better than others?
Your startup business should have a competitive advantage that will make it prosper in the market. Showing the lender that you have a realistic plan to acquire customers and market share is crucial in getting your loan application approved.
Explain what your business does and how it is different from other companies. This will allow the lender to know your business better so that you can get proper funding suited to your type of business.
5. How much funding do you need?
There are countless reasons to get a loan and in line with this, loans also offer different borrowing limits. Personal loans are usually given in smaller amounts compared to business loans. Make sure the amount you intend to borrow is reasonable enough to get your loan approved in no time.
If you really need a large amount for your business capital, consider getting a business loan later.
Funding for your venture
Getting a personal loan for your business is a decision you make with rational reasons. There’s a right time and situation where a loan can help your business prosper. It’s important that you read the fine print before making a commitment.
Most importantly, make sure you understand the terms and conditions and choose a loan that you are confident you can afford. This way, you can ensure that the money you borrow will benefit and grow your business, and not the other way around.