Taking out a loan, whether for business or for personal reasons, is usually about growth. You want to finance that once-in-a-decade renovation you were dreaming of, or maybe you are looking to expand your family-owned restaurant. Nowadays, with so many American households having lost one or both of their sources of income, loans can often serve as lifelines. To fast-track your way to receiving funding, answer a few quick questions to get matched with loan offers that match your financial needs.
But should you call your bank about a loan, or search for an online-lender instead? What can you do if you missed out on the government loans for your business? Is it a good idea to get a business loan to cover your personal debt?
To answer these questions and more, we sat down with personal finance and lending professionals:
Roger Wohlner - a veteran financial advisor and the owner of the Chicago Financial Planner blog
Chris Muller - the founder of the Money Mozart financial blog
Lance Cothern - a CPA and the owner of the Money Manifesto blog
Banks are reluctant to lend, but there are alternatives
With so many families facing financial difficulties, it is no wonder that lenders (boths banks and non-banks) are wary of issuing loans.
But luckily there are plenty of other options available. Online non-bank lenders are more flexible in issuing loans and offer a more streamlined borrowing process.
"Another option, which I’d be very careful with, is credit cards. Sometimes you can get a 0% introductory offer on purchases for 12 or 18 months. But be aware: when that 12 or 18 months ends, or if you make a late payment, or break the terms, you’re going to get hit with the higher standard APR on whatever you haven’t paid off, and that can be 18% or more,” says Cothern.
If those two options are not a possibility, Cothern suggests a more traditional solution: ”This is one of those rare instances that I would actually suggest considering if you have family or friends that can help. You can set really strong guidelines in place to potentially borrow money from them.”
Stay away from pay-day loans
From the standpoint of borrowing costs, there are two contradicting powers. On the one hand, we have record low rates. On the other hand, the risks to lenders have risen.
According to Muller, loans are actually more affordable now: “I do think that pricing is more favorable, if you can qualify for a loan that you can reasonably afford to pay back, I think it’s an option.”He noted that the one thing you should definitely refrain from is taking payday loans: “One of the concerns that I have personally, with all of this crunch pushing people into the category of pay-day loans—which I certainly don’t recommend. Previously, they [the regulators] were looking at things like income, rent, student loans, their ability to repay it. Those restrictions have been removed. My fear is that, with the two things happening at once, it could push people into more high-risk categories of loans. Make sure that you understand all of the terms and conditions, and that you can reasonably afford to pay back what you’re taking out in a loan.”
Should you take a business loan to cover your personal expenses?
Some potential borrowers who are also business owners found a hack: financing their personal needs with a business loan. While this practice may seem effective, it doesn’t come without perils: “I like the idea of taking a business loan for business purposes, but I think when you start bleeding outside the guidelines of the loan, that’s when it’s cause for concern,” says Muller.
“First of all, I would look at the terms and conditions of the loan to see if that’s allowed. I think that people who are doing that now, some may be able to, in the short term, play with it. I personally would not recommend taking that risk,” he adds.
Therefore, a safer way would be to search for personal loan offerings that would better suit your needs and will get you out of trouble.