Personal Loans for Starting a Small Business

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Launching your own brand in the market demands time, effort, and money. When it comes to funding your business, personal loans are a feasible choice. This is because the application time for a business loan is longer, which can cause delays when starting anew. So, skip the queues and seamlessly apply for a personal loan online. Read on to find out its benefits, uses, and requirements for submitting your application.

Why take a personal loan for starting a business?

Availing a personal loan to launch a business is suitable because:

Quick and easy to get
No collateral is required
Useful for any activity

Things you need to avail a personal loan for business

A stronger credit profile:
You need to have a higher credit score to increase your chances of getting your loan application approved by the financial institution. You can do this by paying dues on time, maintaining a low credit utilisation ratio, building a longer credit history and avoiding debt collection.

A steady flow of income to showcase:
Even if your credit score is weak, having a regular source of earnings or revenue can save the day. So, make sure you work towards it, and the same gets reflected in your bank statement.

Low debt-to-income ratio:
Lenders like it when you have a low DTI (Debt-to-Income Ratio), usually below 40%. This shows them that you will likely make your monthly payments on time. To keep your ratio low, pay off any existing debts, try to increase your monthly income, and avoid taking out new loans.

What purposes can personal loans serve for a small business?

There are many ways in which you can use your personal loan for business. Some of the typical costs that it can cover include:

Start-up costs: It can help cover essential expenses, including office rent, equipment purchases, and initial inventory.

Employee hiring: You can use the funds to recruit and onboard your first employees and ensure that the right team is in place from the beginning.

Marketing: It can help you fund marketing campaigns to create brand awareness, attract customers, and establish your business in the market.

Office setup: Create a professional environment for your business. Use a personal loan to finance the setup of your office space, including furniture, fixtures, and technology.

How to apply for a personal loan for a business?

Here is a quick guide to help you apply for a personal loan:

Assess your needs
Begin by calculating how much money you need to borrow to kickstart your business. Once you have undertaken the financial requirements, you will be able to determine the loan amount you will require.

Check your eligibility
Personal loans have certain eligibility criteria, mainly regarding credit scores. Financial institutions generally analyse your credit profile, looking at your past loans and credit card bill payments. They have a specific threshold that you need to meet. So, check this requirement and evaluate your application.

Choose the right lender
Every lender offers different interest rates, repayment terms, and benefits. Therefore, it is important to take your time and evaluate your options to maximise your loan.

Keep the documents ready
Once you’ve chosen a lender, prepare the necessary documents. These include previous bank statements, IT returns, and proof of ID and residence.

When should you take a personal loan for your business?

Remember, personal loans are lent to you for small financial needs. They work best for covering initial start-up costs, basic administrative expenses and more. So, if you are a business that needs a larger sum of money, you might want to consider a business loan. It offers higher loan limits and has more flexible terms.

To make a decision, know what you exactly need, i.e., the loan amount. Create a detailed business plan and estimate the budget you would require. Then, accordingly, choose an appropriate loan.

Wrapping up

Yes, personal loans are a great way to fund your small business. But if you don’t have the ideal credit profile and need funds, you can also consider taking out an overdraft against your fixed deposit (FD).

This option efficiently meets your immediate financial needs while your FD continues to grow. It ensures your savings remain intact and continue earning interest. So, you can make the most of your fixed deposit in your Kotak811 Savings Account. Take control today and make smarter financial decisions.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.