Starting up a new business demands a lot of things. Apart from essential aspects like office space, setups and interiors, getting loans often seem to be a tiring task. The strict fiscal policies and surety principles act as significant hurdles in securing finances. Since they are not established in the market, they face hard times to prove their creditworthiness. Banks and financial institutions require previous profits and net worth statements to qualify for business loans which are not possible for start-ups to provide. In this juncture, the best option you are left with is a peer-to-peer loan(p2p) loan. But how to use them for business operations is something you need to know well to make optimum use of the same.
The contrast between personal loans and business loans:
The first thing that a borrower should know is that the borrowing limit in business loans is higher than private loans. Since small businesses and start-ups won’t qualify for business loans keeping in view the proof of annual sales and years of establishment that the banks demand, startups will have to take more than one personal credit to fund themselves sufficiently.
Many banks offer credit limit of only $40,000 on personal loans which may not be enough. To compensate this, more than one p2p investment may be necessary. But this may again result in your company take many years to become profitable as it will have to keep repaying loans for years together.
Make a note of your credit history:
This is one of the significant credentials that the banks will in to. So it is incumbent on the borrowers to make a note of their credit history. Each lender follows different criteria in calculating a credit rating. FICO scores and Vantage scores are the most common credit scores.
No lender will be willing to issue a loan if you have bad credit. Hence it is advisable to maintain an excellent credit rating. Make sure that your credit rating is below your expectation. This might ruin your opportunities in gaining access to improved loan policies.
For a credit score that falls between 300- 850 a good score would be 700 and above. A good credit history includes certain things like paying EMIs on time every month, paying principal amounts, down payments, etc. These are used almost by all lending institutions like credit card companies, banks, individual private lenders, etc to estimate credit worth of the borrowers. This makes it easy for them to calculate how much and within what time they can expect their money back.