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Do Your Research Before Securing a Personal Business Loan

Sarah Brooks

December 22, 2014

If you're looking to start a small business, there's a good chance you may need some money in order to get things going.

While there are some business ventures that require very little start-up costs (such as an online freelancing business, for example), most will require at least some money for materials, advertising expenses and even living expenses while your business is just starting out. This is where a personal loan comes in.

While it's gotten more challenging to qualify, they do still exist and there are ways you can secure a small business loan without running into a scam.

Steps to Take Before Applying

Among the steps to take before applying:

1. Know your credit score - Lending regulations are strict and if you have poor credit, you may not qualify for a personal loan from a bank. If you don't need the loan immediately, work on improving your credit before applying to increase your chances of securing the loan and receiving a lower interest rate.

1. Know what you can afford - With all loans, you should take out the absolute minimum that you will need. If you take out the maximum, you may run into problems with repaying the loan. Know how much you can afford to pay towards the loan monthly and don't go above that number.

1. Have your paperwork ready - Whether you're applying for a personal loan through a bank or a personal lender, they will want to see financial documents. These include your tax returns, bank statements, pay stubs from your current employer, savings accounts and more. Get all of these documents gathered and prepared prior to applying for the loan.

1. Do your research - Before applying, research the various banks and personal lenders out there. Some have less strict lending laws, some have better interest rates and some have better repayment options. Do your research and select a company that fits most, if not all, of your needs. Have a back-up list ready to go in case you are not approved for a loan by your first choice.

Beware of scams

Always, always, always do your research and check the Better Business Bureau (BBB) on the company you want to get a personal loan from. Scammers prey on people that are in need of cash because they may be desperate enough to fall for the trap.

The article "How to detect & avoid personal loan scams" discusses warning signs that separate the scams from the real deal.

You'll want to stay away from loans that require an upfront payment and loan phishing scams, which is when someone impersonates a business to try to get your personal information.

When looking for a personal small business loan, you need to have your guard up. Do not rush into anything, know what to look for and know what to avoid.

If you end up falling victim to a scam, you're going to be in a much worse financial situation that you were before you even started inquiring about personal loans.

Ask for referrals from friends, too, if you need extra reassurance of a company!

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