What Rules To Follow Before Heading Towards Personal Debt For Businesses
To get started, every business requires money. Even when you are working alone as a one-person start-up venture, still you need money for hosting your website, registration of your business name and the right equipment you need like computer and a workspace. All these points are mandatory to run a business proficiently.
In a general sense, an overall cost of any business will be around $30,000. Unless you have been in this big game for long or have saved some bucks for your big investment, you probably don’t have the liberty to pay such a hefty amount on your own. To top it all, the operating expenses might sometime go beyond the current revenue, mostly whenever you are trying to scale.
Other ways to secure capital:
There are so many ways to actually secure capital, but most of them come with a potential down side. Let’s take angle investors and venture capitalists for example. These people would readily provide you with cash as needed for running a business, but they will do so in exchange of a part of your company’s stake. You get the chance to secure business loan with them or a line of credit through business only. On the other hand, if the organization fails to provide any stream of revenue, banks might not want to extend the credit.
Trying for the personal debts:
You can even try your hands on personal debt, which is a perfect accumulation of personal loans and even maxing out credit cards for building the business. It is a viable option to be honest, but only till the personal credit is in rather good shape. However, the market houses some rules, which you have to follow to go through the path of personal debt.
Try considering your available secondary options:
Avoid trying to head for personal debt as your prime choice or the top-most priority. There are so many other reliable and much safer methods available of procuring capital for running a successful and smooth business. If you are dealing with any tangible product, you can try your hands in crowd funding.
In case it is not in that way, you can consider seeking some funds from other investors, or can at least try your hands at business loan. If you fail to pursue these above-mentioned options, you should try knowing their pros and cons in depth. It will help in providing you with fair consideration before passing these options.
Eliminate the current existing debt as much you can:
Accumulating dollars of debt on your already owned debt is a bad idea. Your business will not turn a profit during the very first few months or even years. During those times, the compound interest might leave you with some major debts than what you have originally started with.
On the other hand, high debt can further impact the credit score quite negatively, making it rather difficult to purchase favorable personal loans later. Therefore, it is mandatory to get ways on eliminating current debt as much as you can before jumping right into business, which will increase debt quite more.
You need to be aware of what you are getting into:
Trying to procure personal loan means you are holding yourself personal liable for paying the money once borrowed, on time. In case your business fails, you will still owe money which you withdrew originally from bank. Furthermore, you need to be sure of your business’s accurate chances of success. It is rather tempting to believe that your idea is so amazing that it will be a sure win. Unfortunately, even business, good on paper, can fail drastically.
Business based failure stats are mostly overinflated, but what is reliable is that around half of businesses can actually make it to 5 years mark, and most of those sources are owned by some experienced entrepreneurs. So, it is not necessary that your business is that “sure thing”, as you thought it to be.
Check on the best terms and interest rates:
It is vital to take some time shopping around for multiple loans and options for securing the current new credit. You need to have a hearty chat with various lenders and check is you can easily negotiate better deal. It is true that you will eye for the loans with lowest interest rates. That means you have to avoid credit cards and have to go with personal loan instead.
Trying to secure loan with any of your personal asset might be a clever or good choice to get better forms of interest rates and conditions. Furthermore, it is going to make the asset quite liable for the repossession. So, make sure to plan accordingly.
Be always ready with a backup plan:
It is always better to prepare yourself by thinking that your business might fail, which will leave you accountable personally for all the new debts in hand. In case that situation takes place, what will be your next step to take? Will you try moving back to your previous career? Are you planning to stay with your relative for the time being so that you can make the money necessary for paying the loan? Well, there are so many options available lately, and it is up to you to make the necessary plans around here.
The real deal:
The stories of entrepreneurs suffering from accumulated debt and then worrying about personal finances are rather too common these days. So, it is highly advisable to not go for the personal debt unless you are pretty sure of what you are doing. You have to stay prepared for all the potential consequences, before working on it. Personal debt can often be proven as quick shortcut to get capital you need for your business growth, but it’s a sure risky move.
Therefore, thoughtful research beforehand is highly recommended before you actually consider making a move in this regard. Once you have all the points sorted well and clear, you are cordially invited to try your hands on personal debt.
Marina Thomas is an experienced and skilled business consultant and Financial advisor. She helps clients both personal and professional in long-term wealth building plans. During her spare time, She loves to write on Business, Finance, Marketing, Social Media. She loves to share his knowledge and Experts tips with his readers.