Learn the differences in financing options before applying for loans to fund your business. The original version of this article was published on FundingSocieties.com.my.
A catch-22 situation that all business owners face at some point, is where to get substantial funding to grow their business. Businesses nowadays have to be innovative, forward-thinking and problem-solving entities to entice their customers and make an impact in their audience. For that to happen, they need funding.
Despite the imperfect world we live in today, there are few viable solutions to the issue of lack of funding. The question is, to choose between getting a business bank loan/financing or personal loan or maybe even taking option #3 with an online P2P platform. To help make this decision easier, here are a few facts you might want to learn before you go about applying for financing.
Business Loan/Business Financing
Business loans or financing are loans you can only use for the purpose of your business. This is a working capital you can use for the following purposes;
- Business expansion – purchasing of new real estate
- Purchase of inventory
- Purchase or rental of equipment
- Acquiring of other businesses
A lot of these uses lean towards the business day-to-day and growth as a whole.
Bank Loans vs Online P2P Financing
Be aware that there are a couple roadblocks on the way to getting your business loan approved. As a business owner, you would need excellent credit to qualify for a bank loan. Banks are more strict with the application process simply because with a business loan you can apply for working capital into the millions, very much more than the borrowing limit on a personal loan.
There is also the matter of reputation, it is easier for an established business to obtain business funding as they can be guaranteed to bring in healthier cash flow. This means that new businesses just starting out will find it more difficult to be approved for a bank loan.
However fret not, as there is option #3. With a P2P financing solution, you can pass through these roadblocks with more ease of mind. For example, if you were to seek business financing with Funding Societies, a P2P operator, all you need is your business documents, the latest 6 months of your company bank statements and a copy of all Director(s) NRIC. The online application process is fairly simple and can be done remotely, with equal borrowing amount and interest rates to regular banks.
So remember to look into alternative financing solutions if a bank loan doesn’t pan out.
The other side of this financing coin is personal loans or personal financing. A popular financing option for individuals, you could potentially utilize a personal loan to finance your business. Here’s the problem, personal loans although easier to obtain, have a low financing value, which means you cannot borrow as much and relies heavily on your own personal credit score.
The benefits of a personal loan are that they are versatile, and there are no strict rules on how the funds are utilized. Secondly, the interest rates are marginally lower on a personal loan compared to a business loan. Lastly, they are a great solution to debt consolidation.
That being said, it may not be enough to sustain your business day-to-day and it may be insufficient for long term business needs.
So with this information in hand, remember to visit all angles when looking for business financing. Make sure to know how much you want, how long you want it for and your own eligibility. With that last note, good luck on your business journey!
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