Should You Take a Business Loan for Your Online Business?

If you’re just barely starting your online business, chances are you’re going to need a lot of capital to get things rolling. Many entrepreneurs trying to start up their dream business online may turn to taking loans to find this extra capital, but it can be hard to know if this is something you should do for your own business.

The bottom line is you want to make money on your online business, right? Well, it can quickly become difficult to make a consistent level of profits while also paying a business loan off at the same time. Juggling various payments, costs for materials and supplies, and labor costs can become a huge headache.

So, should you take out a loan for your online business? The answer is maybe. It may be the only viable way of securing the funds you need to start your business, but it may not always be the best option. We’re going to take a look at some potential ways to get the capital you need to start your online business in this article, so keep reading to learn all you need to know about business loans and other sources of funding.

Pros and Cons of Taking a Business Loan

There are some inherent pluses to taking a business loan if you choose to go that route. These pros include being able to secure the exact amount you need to start up your business and a quick transfer of funds. You won’t have to wait for money to trickle in, you’ll usually get the entire sum you requested all at once.

However, there are also a few reasons why you might not want to take out a loan for your online business. If you’ve got less than stellar credit, you’re going see very high interest rates, which will make you lose money in the long run. With high interest rates, you’ll be paying a high amount of money on top of the principal you owe.

Or if your credit is poor enough, you might not even be able to find a loan in the first place. If this is the case, or if you’d rather not try to go this route, there are other options available. Let’s take a look.

Loans from Nonprofits and SBA Loans

The first option is your standard business loan, but through the US Small Business Administration’s microloan program, you can secure up to $50,000 to or expand your business. This can be a huge boon to you if you are able to qualify. These are typically easier to qualify for than your regular large-dollar loans, but this also means that there may not be enough funding for the amount you require.

These kinds of loans are great because they’re government funded and tend to have lower interest rates, while also being easier to qualify for. If you choose to go this route, a micro business loan can help grow or start your business while also offering an avenue for you to grow your credit and make money from your business.

Additionally, if you are part of a minority group or underprivileged group, there are special funds just for you and your business. It can be a great way to get your online business started, you just have to apply and qualify!

Family and Friends

If you’d rather not take out a conventional business loan, or even one of the government funded options, you could always turn to friends and family for help. Many times, this is one of the most common ways new business owners start their businesses. Of course, you’ll have to make sure they trust you enough to lend you the sum you require, but this shouldn’t be hard for most people out there.

A potential drawback of this method is that the investor will have a personal investment in your business, so it can potentially get messy quickly if you’re not able to pay the sum back. It takes a great deal of trust on both parts, lender and lendee. Just keep this one in your back pocket if you’re not entirely sold on the idea. You never know who might be willing to help you achieve your business dreams!

Business Credit Cards

A different option, in the same vein as taking out a business loan, is using a business credit card to help you start your business. Many people have relied on this method to help them start up their new business, and it could work for you too. This is a short-term financing option that is easy to pay off quickly. So, if you don’t foresee needing a huge sum of cash to get things started, you might want to look more closely at this option.

However, using a business credit card can be dangerous. If you leave the charges unpaid for too long, interest will start to accrue at a rapid rate. The interest rate on a business credit card is largely determined by your credit score, so you can expect a better rate the better credit you have, and worse the worse your credit is.

Another thing to keep in mind is that research shows businesses that rely heavily on credit cards to fund their operations may not be financially viable in the long term. So tread carefully if you decide to go this route.

Personal Business Loans

Personal business loans are another route to funding you may want to consider. These differ from previously mentioned loans in that they are not specifically tailored to new business owners, so if you require a much larger sum of cash to get your business started, this may be the route you want to go. If you’ve got good credit and a solid income, this may be the best option for you.

But, similar to business credit cards, personal loans typically come with a much higher interest rate. If you’ve got bad credit, you can expect potential APR’s as high as 36%, which is probably much higher than you should settle for.

Personal loans should be taken as a last resort or should only be used for certain start up costs like early production or equipment costs. Those who have funded their entire business with personal loans may have a rude wakeup call when they realize how much they’ll have to pay back in interest, on top of the principal amount.

Crowdfund Your Business

A more recent method of funding your online business could be through crowdfunding. Crowdfunding has become popular in recent years, allowing people of average financial means to achieve something great if enough people are interested in it. That’s the catch here, you’ll need a business idea that piques the interest of enough people who are willing to donate to your start up.

If you’ve got a good enough idea and are able to lay it out in a clear and attractive way to potential investors, you could have a very successful crowdfunding campaign. However, it’s important to note that if you don’t deliver on what you said you would after having secured the required funds, you could have a lot of angry funders on your hands.

Business Grants

There are several private foundations and government agencies that provide funds to help start up get started through specific business grants. As these grants are essentially free capital, they can be much harder to secure. But if you can swing it, you’ll have the funds to start up your online business without having to worry about paying a lender back.

There are many specialized grant programs available for potential business owners, such as the small business grants for veterans’ program and the small business grants for women program. If you look hard enough, you can probably find a small business grant that applies to you, so happy hunting!

Final Thoughts

Taking out a business loan to help fund the start up of your online business can be a great way to get the ball rolling, but it also comes at a cost. You’ll have to pay back interest on the loan, on top of the principal you owe. However, this can be a good idea for those who have good credit and enough income to ensure they can pay the loan back. It’s not a good idea for those who struggle financially or have poor credit.

But don’t limit yourself to business loans only. There is a plethora of funding options out there if you know where to look. The options we’ve outlined for you in this article should be a good place to start, so carefully review your credit and finances and decide which option will work best for you and your new business. Whatever your decision, we wish you good luck in all your online business endeavors!

Leave a Reply

Your email address will not be published. Required fields are marked *