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Using a Personal Loan for a Business Start-Up

[May 5, 2009.]


It’s not always easy to find the funds to start a new business. Getting a small business loan usually requires having a thorough business plan, and even entrepreneurs who have one may have difficulty receiving start-up money. But getting a personal loan is one way to pay for some of the cost of a new business venture.

Not having sufficient funds to launch a business can doom it to failure before it even gets off the ground. Start-up expenses can vary greatly depending upon the type of business and industry. But in many cases, the first major expense many entrepreneurs will make is buying a new computer. A small, unsecured personal loan could give a person enough money to get some of the basic equipment they need and set up a home office. This calculator can help budding entrepreneurs estimate their start-up costs.

Here are some other things to remember about using personal loans for a business start up:

  • As with many loans, the better a borrower’s credit, the better terms they’ll receive. People with credit scores above 720 usually receive the most favorable interest rates.

  • Using a personal loan will usually be less expensive in the long run than taking an advance on a credit card. That’s because credit cards usually have higher interest rates that are variable and charge fees for advances. Many lenders offer the ability to get personal loans with fixed or variable rates.

  • A personal loan may also be less risky than borrowing from a 401(k). While many companies allow workers to take loans from their 401(k) plans, the money would have to be paid back within about 60 days if they were laid off or left the company for some other reason. If the borrower were unable to pay the money, they would also be hit with a tax bill and early withdrawal penalties.

  • Having a checking or savings account at a bank could work in a borrower’s favor when they apply for a personal loan. But it’s important that they have a good record at the bank without a history of overdrafts and other negative events.

Many people have been laid off from their jobs in the past year, and many of them are flirting with the idea of starting their own business. For many of them the biggest obstacle is money. A personal loan could help some of these people begin to put their plans in action and join the ranks of the self-employed.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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