When managing your finances as a business owner, you may reach a point where you need a little extra cash.
This could be for more than just funding your small business or startup. Perhaps you're putting resources into your business and that is putting a crimp in your personal cash flow. Maybe you had an unexpected personal expense come up, and you don't want to dip into your business to take care of this matter.
Starting up and growing a small business means making all sorts of decisions every day about where you put your financial resources and how to make your money work--personally and in your business. At some point, it might make sense to look into getting a personal loan to help you bridge a cash gap as you work toward your business dreams.
What Is a Personal Loan?
A personal loan is just what it sounds like--it's a loan that you receive for personal use. In many cases it is unsecured, meaning that you don't need collateral to access the credit. Most personal loans are installment-based, meaning that you make set payments over time with a set term. It's not like a revolving credit card which allows you to continually borrow up to a certain limit as long as you keep making payments.
One of the main advantages of a personal loan is that it is sometimes possible to get a better interest rate than you would see with a credit card. You might also be able to qualify for a larger loan amount, depending on your situation.
Getting a Personal Loan
In some cases, it can make sense to go to your bank for a personal loan. My bank, where I keep my primary checking account and my business checking account, allows me a personal line of credit. This is actually a revolving line of credit that is a little bit different than the more traditional personal loan. This personal line of credit helps me smooth my cash flow when clients pay late or if I have other issues arise.
When you apply for a personal loan at a bank you need to be prepared for a credit check. You might also need to have another account there if you want the best results. Depending on the requirements of your bank, it may be difficult to get a personal loan for any amount you need. In those cases it can make sense to turn to the Internet.
I have actually used a personal loan in my own life to smooth over situations and avoid tapping into my business or retirement assets. Last summer my (now ex) husband asked for a divorce, and I decided to move across the country to be closer to my parents so they could provide emotional support for me and my son. Coming up with the money to move wasn't exactly easy, and I also knew that I would have to cut back on my business a little bit during the time I was moving.
Rather than raid my retirement account or completely deplete my savings, I decided to apply for a personal loan through Avant. The process was easy and it was done online, and I had the money fairly quickly. The interest rate was also reasonable and the payments manageable. This helped me manage my cash flow and pay for the move without putting my business finances or my personal finances in jeopardy. It made sense because it provided peace of mind and simplicity.
Sometimes Debt Makes Sense
Sometimes we get so caught up in the idea of being debt free that we forget that sometimes a little bit of debt actually makes sense. I actually don't mind using resources like Fundbox and PayPal Working Capital to smooth my cash flow or help me make an investment in my business. Even though there is interest to pay, interest on business loans is usually tax-deductible. Having a tax deduction doesn't completely make up for the fact that I'm paying interest, but it does reduce the pain a little bit, and I find it's worth it for cash-flow purposes.
The same is true in my personal finances. I have no problem financing my car purchases when I can get a good interest rate. I am also willing to get a personal loan if it can smooth my cash flow without being too expensive.
While I don't live a lifestyle that is steeped in debt, I'm also not completely opposed to using debt in the form of a personal loan or line of credit if it makes sense for me and my current situation. There is a reason businesses seek financing and funding, and even the most profitable businesses have a little bit of debt on their balance sheets. The financial reality is that debt really can destroy your business and personal finances. But it can also be a tool when used properly and not in excess.
