You've got a great idea for starting a new business, and the only thing holding you back is, you guessed it, lack of funding. You don't want to borrow from family and friends and since the finance required is quite modest, no venture capital firm will bite. So, where do you go? A personal bank loan might be just what the doctor ordered.
Under what circumstances should I consider taking one?
A borrower may resort to a personal bank loan when he finds himself suddenly cash strapped, and is in need of a quick injection of funds. This is one of the most in-demand financial products, but surprisingly, not all banks offer them, as they would rather push a more profitable product like a credit card. However, for business related needs, a personal bank loan is much more suitable and offer greater flexibility. What's more, it usually carries a lower interest rate than a credit card does.
What security will I have to offer?
A personal bank loan may be secured or unsecured. In the former, the lender will insist on some kind of guarantee that can be enforced in case of default. Typically, this takes the form of collateral - where certain assets are pledged with the lender, who will have rights to the same in case the borrower does not pay up. This poses serious challenges to a new entrepreneur, who may not have built any assets yet, and even if he has, may not be a position to place them at risk.
This is where an unsecured personal bank loan can come to his rescue. An unsecured personal bank loan has no such strings attached other than that the borrower must have a clean credit record (but you can be sure that no bank will blindly sign away their money, so be prepared for onerous scrutiny and loads of paperwork and be cautious about any personal guarantees that you may have to furnish).
I don't think my bank will give me one.
In recent times, while the popularity of the unsecured personal bank loan has been on the rise, ironically, its supply has tightened. This has resulted in the entry of other types of lending institutions, including those that are web based, which offer low interest rates and superb service. A couple of examples are E-LOAN and America One Unsecured, but we recommend that you investigate other sources as well.
While taking a personal bank loan has its pluses, be aware that it's not always the ideal solution. Don't opt for one just because it seems expedient. Consider other important issues, including overall cost and alternative financing options before you go ahead.
