So you are all gung ho about starting off a new venture that you have conceptualised for years. In your preparation for bootstrapping your start up, you may have even kept some funds aside. However, when things are finally ready to execute you find that you are falling short of funds. At such times, you need an urgent source of funding. While Business loans and working capital loans are fairly easy to get, you will find that traditional lenders are wary of giving you a business Loan for your start up business, because you neither have an established track record, nor are likely to have any collateral to offer.

Your best bet at this point of time is a personal loan that can be used for business purposes. Most entrepreneurs however are under the impression that unsecured debt right at the beginning of a venture is unsafe and may harm the reputation of one’s business at a later stage. This is however a misconception. On the contrary there are many benefits. Here is why?

Collateral free

The first and foremost reason to opt for such a loan is that it is collateral free. This means that you do not have to mortgage any personal assets in order to acquire a loan for your start up. As long as you are making repayments on time on personal loans, you can meet your business needs comfortably and the lender is not worried.

Your credit score works in your favour

As a part of your credit assessment process for a personal loan, your CIBIL score is taken into consideration. If you have maintained a good credit track record and have a high score of 750 and above you can get a higher loan amount and even negotiate on the interest rate component.

Faster and easy financing

Loans that are specifically manufactured for funding businesses are much more demanding. Not only does an entrepreneur have to provide collateral, there are several other requirements such as detailed business plan, future earnings expectations and terms and conditions about the usage of the money being lent. Personal loans on the other hand are more flexible in nature and can be used for business purposes, no questions asked. Further due to the minimum documentation needed on such loans, the processing is faster and easier.

It helps build credit record for your business

When you take a personal loan to fund your business, and make timely repayments, you are in fact establishing a good credit track record for your new venture. Timely repayment will help you build your own credit score further and establish a payment track record for your new business. At a later date, you can use this as a base to access a bigger business loan and cheaper rate of interest.

While a personal loan can be used to fund a start up business, there are certain factors you need to bear in mind while availing of one:

• A personal loan though bigger will come at a higher rate of interest that ranges from anything between 15-25%.
• The tenure on personal loans are short and thus you need to be sure of making repayments regularly within the said time frame.
• Inability to repay the loan on time will bring down your personal CIBIL score and impact the future prospects of you opting for a business loan.

If you are confident that you can meet the above requirements within the stipulated time frame, a personal loan may be just the thing you need to get your new business venture off the ground.

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