Applying for a loan might not sound like a financially-wise action. But there are factors about it that will make you rethink again. The first clue is that entrepreneurs rarely start a business with their own money. Even if it is theoretically possible, the equipment and service quality will be at cost. In the end, the company will be at stake of losing in the business competition.
Loan builds personal credit
What is personal credit? And why should you care about it? Personal credit, to put simply, is your reputation among creditors. And the common misconception about credit score is that if a person never applies for a loan, he/she must have a good credit score.
People who have never borrowed funds from creditors possess neither good nor bad credit score. They belong to the neutral category. And the chance for their funding request to get accepted by creditors will depend on their salary and the quality of the proposal.
People with proper credit can increase their loan limit. The principle is that once you can successfully pay off a debt, you can ask for another one. If you are convincing enough, you can even borrow a large amount of money with minimum debt collateral. This facility and easiness will embrace you once you find your motivation to establish your own business.
For people with bad credit, requesting for a loan to a creditor will be a difficult task. But you can find loans for bad credit here. Such a loan will require minimum checking and inspection, but the downside is that the interest will be much higher than the regular loan. It is best to use a for -bad-credit loan as a financial reinforcement to pay off the existing debts.
A loan is the best way to fund your business
As what has been briefly discussed in the first paragraph, a new business will experience a big expense for the equipment, service, and upgrades. Funds from personal wallet will be not enough, especially if you are the only owner of the business.
A loan for business liberates you from joint-ownership. Once your business is big, you can start looking for investors and improve your production and service. But before you can have all of those, you must take the most rational path, to wisely use loaned money.
Also, sometimes you may hear suggestions of asking for funds from the closest relatives. The suggestion can work, indeed, but not all of us are surrounded by relatives who know about business. And once again, getting funded by a creditor makes you a customer of a loan business. And in business, once the price is paid, you are free. The story will be different if you rely on the funding from your relatives. They will be most likely to interfere your business policy and undermine your authority.
A loan can save you in urgent situations
This section is strongly tied to the first one. A loan is fast money that you can get with or without collateral. And in return, your creditor will charge you with interest. But the probability of your loan request to be accepted depends on your credit score. People that have a bad history of debts will be the last in the creditor’s priority. Most of the time, bad credit people are even black-listed and cannot get funded until they improve their credit score.
No one can avoid unfortunate events. For instance, we can get sick anytime, and the medical bills will follow to charge us. When our saving can still cover the expense, then there is no trouble, but then the bills are too much, we cannot count on anyone but creditors. And if we have foreseen the event by building an excellent reputation for managing and paying off debts, we will easily get the financial support when the tragedies and mishaps happen.