Funding the startup an aspect of the business where most of the entrepreneurs have to survive through the struggle. While you have just entered the business world you need a lot of funding to survive the initial years. The first option to opt for financing the business for any entrepreneur is bootstrapping. If the bootstrapping doesn’t work out well then banks are the primary source of funding the business in the initial period i.e. business loan. Many of the startup business don’t fall fit for the business loan due to the initial period of their business where they have no collateral to offer and the bank requires the previous track records of the business which they are unable to generate. So, the entrepreneurs look for funding from the banks through personal loans. Yes! Personal loans can be considered to fund your startup. An initial requirement up to the amount of INR 25 lacs can be fulfilled with the help of personal loans. Well, here are the ways a personal loan can be utilised for your next big startup.
USES OF PERSONAL LOAN
- The first use of the personal loan is that personal loan can be used to fund your business in many ways such as the initial capital. For instance, if you have enough resources to prove that you will be able to pay back the bank then the banks’ give you instant approval on the personal loan as well as the funding of your personal loan.
- Banks also provide personal loans to startups to fund their research and development of a particular product based on the product concept and the product design and other aspects. If the product looks well and good the banks give instant approval.
- The banks also fund the startups for their inventory. For instance, if you are in the business of a particular commodity where you need to maintain inventory on a large scale, then the banks assist you on the funding of producing more and maintaining inventory for the product based on the nature of the product.
- Also, one of the uses of personal loan financing is the bank gives a personal loan to the businesses for buying machinery and equipment for the business as well. For instance, if you want a business loan for your financing of equipment the bank may not approve instantly. But, for a personal loan the probability of your loan increases.
Thus, it becomes easy to gain a personal loan due to the higher eligibility of a business loan. The versatility of uses of personal loan for a business makes it more favourable for the entrepreneurs to opt for it as it is easily available.
There is less eligibility benchmark for the personal loan as compared to business loan. In a business loan, the entrepreneur has to be ready with the documents such as the business plan, the turnover rate of the business, the pace of the business, the financial statements which decide the eligibility of business to get a business loan which is hard to pass. While in personal loan, the banks look at the creditability of the owner of the business i.e. the CIBIL score and the CIBIL report, the personal assets of the owner and the income of the owner. So, the eligibility criteria are favourable for the entrepreneurs which allow them to opt for the personal loan.
ADVANTAGES OF PERSONAL LOAN for Business
The personal loan has got many advantages to it when it comes to the funding of the startup. Some of them are as follows:
- The first advantage of personal loan for the startup is the low-interest rate of the personal loan as compared to the business loan. Every entrepreneur by the end of the day wants to earn more from his business. So, if the interest rate on the debt is low, it allows the entrepreneur pay less EMI which results in more profit.
- The second advantage of the personal loan is the quick availability of the personal loans for the business. The personal loans are easily available which ensures the business owner that the requirement of quick funding can be fulfilled with the help of a personal loan.
- The third advantage of the personal loan is an unsecured loan. Most of the times the personal loans are unsecured in nature which allows them to be collateral free which is beneficial for the business in many ways. For instance, if the bank borrows a personal loan instead of the business loan then if the business again needs an immediate funding requirement it can sell the asset and liquidate the money out of it.
- The fourth advantage of a personal loan is the less documentation process required at the time of borrowing the loan. For instance, if a startup looks for a business loan as a funding option from the bank the eligibility benchmark is high due to the requirement of documents from the business for which startups are unable to qualify. Whereas, in the context of personal loan, the personal credit of the owner is considered which is easy to qualify if the owner has a white collar when it comes to credit.
- Lastly, the personal loan has less processing time which allows the funding to be flexible for the business. The business can allocate the funds quickly to the required departments which decrease the lead time of the business for a turnover.
The startups that are just in the beginning stage might have to use the collateral for the personal loan for getting funding. Well, for the entrepreneurs who don’t have time to get funding from the banks for the personal loans there is the solution for them as well. Finance Buddha, a leading company in the business of providing loans from the leading banks in India such as Axis Bank, HDFC Bank, Induslnd Bank and more can help you out with your funding with additional benefits such as the lowest interest rates and processing fees. Also, there is a hassle free documentation process which allows the business owner to focus on other things.
— Amrita Agarwal (@InvestorAmrita) June 28, 2017