Using your personal savings and obtaining a small business loan are both great options to fund your small business startup. However, it’s all about timing. According to research done by Gallup, most small business startup owners use their personal savings to launch their business. Small business loans are the second most popular option for funding a small business startup. While you could go either way (i.e. using your personal savings or obtaining a small business loan), the best way to go depends on a number of important factors. In this blog, I discuss what those factors are.
- Your Income – If you have a steady income, obtaining a small business loan to launch your small business startup will be easier. Most lenders will request proof of employment and proof of income to determine if you earn enough to be able to service the debt. As a rule of thumb, you should be employed for at least 6 months before applying for a small business loan. It’s also good to stay employed even after the business has launched. Sales may be slow in the beginning and you will still be required to make monthly payments towards the small business loan. Therefore it’s wise to keep your job for as long as possible.
- Your Personal Credit History – If your personal credit history is short and/or you have a lot of derogatory or delinquent accounts, it may be more difficult to obtain a small business loan. In this case, bootstrapping will be more suitable for you. This will give you time to rebuild your personal credit history so you can qualify for a small business loan in the future. At some point, you may need to borrow money to grow your business, so rebuilding your credit sooner rather than later will be of great benefit to you. If you have good credit, that’s great! It will be easier for you to get a small business loan from the very beginning. However, I strongly suggest you invest your own money and learn the business before jumping the gun and obtaining a small business loan.
- Your Business Plan – It’s important to have a business plan so you will have a clear idea of how the money you borrow (or invest out of your own pocket) will be spent on the small business startup. In fact, most lenders will require that you have a business plan to apply for a small business loan. Whether or not you obtain a small business loan, it’s still wise to have a business plan. Developing your business plan and outlining your financial projections will give you a clear picture how money will be spent and made in your small business startup. Your business plan will also help you determine whether you should bootstrap for a while and eventually borrow or borrow money outright to start the business.
LenCred Can Help if You Need a Small Business Loan
LenCred specializes in help small business startup owners obtain funding for their businesses. They not only help you get funding, they also help you determine whether or not obtaining a small business loan, line of credit, or bootstrapping is right for you. If you believe your income, personal credit history, and business plan for growth is intact, I strongly suggest reaching out to one of the helpful Advisors at LenCred. They will review your personal credit history to determine if you qualify. If you qualify, you may be able to get up to $250,000 for your small business startup in as little as the next 30 days.