Should I fund my business with a personal loan or microloan?
Does your small business need financing? With so many options available, a straightforward personal loan might seem appealing – but is it right for your business? You might want to consider a microloan instead, and here’s why:
1. Microloans and personal loans are designed for different purposes.
At first glance, micro loans and personal loans might look quite similar. They are often unsecured loans, which means banks do not require you to pledge any assets as collateral. However, a SME micro loan is considered a business loan and is meant to provide a source of working capital – for undertaking a business expansion, or bridging a payroll gap for example. In contrast, a personal loan is one which is better suited for personal reasons – such as paying for your education, personal projects and so on.
2. A microloan offers relatively more flexibility compared to a personal loan.
When applying for a microloan, banks will consider your company’s credentials in the application process, while application for a personal loan will largely depend on your personal income and creditworthiness. The requirements for a microloan are often more flexible than that of a personal loan, and applicants who do not have a strong personal credit score might still be eligible for a SME microloan.
3. A microloan could give you access to more funds.
In determining which loan type is a better fit for your business, it’s important to know exactly how much funding you need. A microloan such as the DBS SME Microloan will allow your business to borrow up to $100,000 over a four-year period; in comparison, the loan amount you qualify for on a personal loan is computed based on your monthly income. In general, the higher your monthly income, the more funds you will be able to secure. If you’re just getting started with your business and don’t yet earn a steady recurring income, a microloan might be a more viable option.
4. A microloan could help your SME build its creditworthiness.
Managing your cash flow isn’t just about ensuring more money is coming in; it’s also about reducing the amount of money your business is spending. It’s good practice to take stock of your company’s operating costs – are there cheaper alternatives that you can use, or can you make your business more efficient? Outsourcing some business functions may help you minimise costs associated with overtime wages, and lead to greater employee productivity.
Does your business need an urgent cash boost, whether to bridge a payroll gap or to pursue a valuable business expansion? Secure quick funding with a DBS SME Microloan and enjoy attractive rates today
Subscribe to DBS BusinessClass
Stay updated with the latest market trends and industry insights, connect with a network of entrepreneurs, and gain access to exclusive event invitations. Join Asia's fastest growing business community – get your complimentary membership here.
