When we talk about Personal Loans, we would often think that individuals will use it to pay off high-interest credit card debt, pay renovations cost of a home, projects, or get it to pay for miscellaneous expenses.
But, the application of a personal loan can be used for much more. Why? This is because you won’t have to provide a business plan or jump through the hoops associated with borrowing via a business loan. However, eligibility and criteria still apply for you to get a personal loan.
Can You Use a Personal Loan for Your Business?
You may be wondering, Is using a personal loan advisable for business owners? The answer is a resounding yes. Indeed, you can use a personal loan for your small business.
Personal loans depend on the credit score of the individual, however it still different how as to getting a loan for business works. A personal loan can tide you up for a period of time especially for if it’s paying for personal finances. On the other hand, when using a personal loan for business purposes. You’ll need to choose a secured consumer loan, but it’s less likely that you’ll have to provide collateral with a private loan than with a commercial loan. While personal loans can generally be used for legitimate reasons, including financing a business, you should consider the conditions they may include.
What makes personal loan so attractive? The answer can be as simple as the repayment of personal loans is on an instalment basis, usually with monthly repayment. The attractiveness of personal loans vs. a business loans is that you do not need to put up collateral to get any business loans, this is also applicable to those securing a small business funding.
However, as individuals applying for the loans, it is good to understand from the lenders if they have any restrictions on how the funds can be used, this is critical as some lenders will have specific criteria that are in place. It is a good practice to enquire and understand each lender’s requirements.
Below we are going to look at some advantages and disadvantages you can consider before going ahead with a personal loan for your small business.
What are the Advantages and Disadvantages of a Personal Loan for Your Business?
Whether using a personal loan is sensible for your business, it will still rely on a range of things, including your business’s finances, your personal credit history, and the way much you propose to borrow. We listed below what are the advantages and disadvantages of using a personal loan for your business.
Advantages of Personal loan for your business
1. Ease of qualification
If you’re planning to start up your business venture, qualifying for a personal loan can be easier than a business loan. Since you are just starting out your business then you clearly don’t have some of the histories of small-business lenders. At the same time, if you have a good credit rating, you have a higher chance of getting approved.
Below is a table illustrating providing a rough understanding of the amount an individual can borrow from a licensed moneylender in Singapore based on your income and residence status.
Check out here for the Ultimate Guide to borrowing from Licensed Money Lender in Singapore.
|
Annual Income (SGD) |
Singapore Resident & PR Status (SGD) |
Foreigner residing in Singapore |
|---|---|---|
|
Less than or equal $10,000.00 |
$3,000.00 |
$500.00 |
|
Min $10,000.00 & less than $20,000.00 |
$3,000.00 |
$3,000.00 |
|
At least $20,000.00 |
6 Times of Monthly Income |
6 Times of Monthly Income |
By understanding of eligibility to apply for a personal loan, this would allow you to plan accordingly and wisely.
2. Tenure of Repayment
When a licensed moneylender approves any personal loans under your name, you are already obligated and responsible for repaying the loan amount which you had borrowed.
On a general basis, most personal loan repayment usually has a monthly repayment, while some lenders do give weekly repayment. Compared to business loans, individuals get personal loans due to the repayment structure.
Ensure that you’re paying each instalment by the agreed repayment date. Paying them late won’t only result in your instalments accumulating, but also incurring late fees and late interest. Having your debt accumulate may also make it harder to pay it off.
3. Flexibility and Usage Options
When it comes to funds distribution, lenders are flexible in how you utilize the funds, which implies you’ll be able to split the money as you would like between business acting as business loans and private expenses, or any other needs which is a good option for the self-employed or sole proprietors.
While there is no restriction on its usage the key thing is to remember that it must be paid back eventually irrespective of the circumstance.
4. Low Annual Percentage Interest Rates
The annual percentage rate (APR) is that the official rate accustomed facilitates your understanding of the value of borrowing. It takes into consideration the rate of interest and extra charges of a credit offer. All lenders need to tell you what their APR is before you sign a credit agreement.
For Singapore, the APRs rates can be as low as 5.99%. to 6.99% being offered by licensed moneylenders. It is advisable to get clarification from moneylenders when applying for any loans.
Key Disadvantages
1. Loan Amount Differences
The key difference when we apply for a personal loan versus business loans is the amount we can borrow. When we look into some demographics of money lending, we can see that the loan amount borrowed is from S$30,000 to S$100,000. The limitation is due to your annual income, whereas, with a business loan.
2. Personal Credit Score
Personal credit rating is vastly important when you are trying to secure a loan. The approval of a loan is highly dependent on your credit rating and the interest of your loan is directly impacted by that rating. Furthermore, if you have a bad credit rating, you will either receive a smaller loan amount or be rejected.
One key advice to maintain a good personal credit score is not to default on a loan, as once you defaulted, it will appear on your credit report indefinitely. If you can’t make a repayment, always seek credit counseling and have your debt restructured. While it’ll lower your credit grade, it’s better than defaulting.
3. Loan Collaterals
When we consider the personal loan aspect, it is secured, but in the process, you may be risking your house, car, or other personal assets if you are unable to fulfill the repayment of the loan amount during the tenure of repayment.
This would then be deemed as a defaulted loan payment in which the lender has the right to seize or foreclose on those assets.Therefore, it is important that you are constantly aware where you are at with your loan and ability to repay.
4. Interest on Personal – Non-Tax Deductible
When applying for a personal loan, is it important to note that The Internal Revenue Services (IRS) of Singapore does allow business owners to take a deduction of interest from the loan approved if it’s a business loan but not for a personal loan. This a key factor you need to keep in mind.
Factors to Consider before applying for a Personal Business Loan
There are many factors when taking a personal loan for business, here are some factors that will help you out;
1. Business Less Than 1 Year Of Operation
Being in business operation for less than 1 year may yield some challenges or even business opportunities, and through those moments, the need for monetary resources may be required; therefore, obtaining a personal loan may be a viable option.
For the application of small business loans, there are many criteria which moneylenders and banks have imposed. Some criteria which have been put out by banks or moneylenders are the likes of 1-2 year minimum operational, an annual turnover of S$250,000 to S$500,00, while this may not be a challenge for many to achieve, but there will be for some.
Therefore, if you are looking for immediate and no-hassle approval, the personal loan route would be a good option for quick and easy to reach monetary support for your big or small business.
2. Small Loan Needs
Whether it’s to kick-start that small business opportunity or to sustain short-term cash flow, taking loans would be a much more feasible and easy option. Why? As it’s hassle-free, fewer collaterals and repayments are more manageable.
3. Quick Cash
Personal loans are an excellent way for your business to obtain quick cash. The quick cash is as simple as to use to pay supplies or to use it as cash flow for your business. As the amount is generally small, they are easily approved, especially if you have a good credit rating. Again, for any loan application, do only apply if you genuinely need it.
4. Hassle-Free
As we know by now, applying for a personal loan versus a business loan has a few beneficial points. Among them are only looking for a short-term loan, quick cash, or even small loans, this can be handy and hassle-free. Business loan application comes with criteria, and especially if you are a business just starting, those criteria can be hard to reach.
Where to apply for Personal Business Loans?
Banks and Credit Unions
When we think of loans, we automatically think of banks or credit unions; the reason is that they are likely to offer the lowest interest rates. For those considering this option, you would have to take note that qualifying for a best SME business loan is often harder as there are potentially more obstacles that you may encounter, but this does not mean that it is impossible. Here are some ways which could help you;
The first option is always to go with the bank or credit union, which you already have a good relationship with. If you’ve used the institution in the past for private or business accounts and loans, your banker could also be more motivated to push your application through the loan committee.
The second, ensure to thoroughly indurate the method by fashioning a solid business plan with sound financial projections. Finally, be prepared to approach other lenders if your bank doesn’t approve your application. Sometimes it’s a matter of finding a lender that’s searching for a borrower such as you.
Licensed Moneylenders
The other unconventional way of getting on with loans is via a licensed moneylender. The idea of using a moneylender can be quite scary but we have to understand most of the moneylenders within the country are licensed.
Hence we are confident that they will be trusted and another good thing with licensed moneylenders is that they compete with one another when it involves who got the most effective offers to their clients hence you now have the possibility to decide on which one has an all-time low annual rate and economize.
For the benefit of everyone, a great indicator is that for unlicensed moneylenders they tend to own or offer higher rates compared to those licensed moneylenders thus making you spend more for the annual interest rate. Read our article to learn more information on the distinctions between licensed and unlicensed moneylenders.
Conclusion
To conclude, the process of taking the first step to obtaining a loan, especially from a licensed moneylender can be scary but it is with good understanding and clarity that would provide assurance to anyone. You definitely need to do your due diligence and take remember that with the right resources even taking from a licensed money lender can be as safe as taking out a loan from the bank.
If you want to read more options regarding personal loans or other types of loans then check Loan Advisor. Loan Advisor team will guide you with the different choices suitable for you.
