How badly do you want to start up your small business? If you’re like former Major League Baseball pitcher and World Series hero Curt Schilling, you may be willing to bet your entire life savings — $50 million earned while playing baseball – on a failed start-up that resulted in 400 people losing their jobs, threats of lawsuits, and defaulting on more than a $100 million in small business loans from various lenders. But that’s a worst-case scenario that many small business owners will never face.
According to the U.S. Small Business Administration, 95 percent of start-ups are funded through small business personal loans – everything from re-financed home mortgages with cash out, mortgage-based lines of credit, even personal credit cards. Here are some of the advantages of taking out small business personal loans.
- The availability of huge amounts of cash. If a borrower owns a home “free and clear” – in other words, the mortgage has been paid off in full – then he or she has a vast amount of cash to tap into based on property value.
- When taken out against a mortgage, they have lower interest rates and a longer pay back period, often 15, 20, or 30 years.
- Tax deductions on interest payments for small business personal loans taken out against a mortgage. With a home equity loan, you have one advantage personal and business loans – you can take advantage of tax breaks on your interest payments. The money you save in tax breaks can go towards repaying your home equity loan.
What Can Small Business Loans be Used for?
These types of transactions give the borrower greater flexibility than other types of loans, allowing them to cover expenses critical to starting and maintaining their business. These kinds of loans can be used for:
- Purchasing or renting office space.
- Research and development for new products.
- Marketing expenses, related to advertising campaigns, online or email initiatives, road side billboards, or television, radio, and print advertising.
- Small business loans can also be used to buy or rent office supplies, such as computers, copy, and fax machines, office furniture, and pens, paper, and books, for instance.
- Employee salaries. Entrepreneurs often use small business personal loans, at least initially, to cover employee wages and benefits.
- Securing other loans and lines of credit.
- Paying off other debt.
How to Apply
Small business personal loans can be taken out many ways, even through something as simple as a cash advance on a credit card. But there are other ways, too, among them:
- Borrowing from a 401(k) account. Many business owners have a 401(k) savings account, and often take loans against it to use for start-up costs. The advantage here is the loan is repaid with interest – back into the existing 401(k) account.
- Take out a home equity line of credit or refinance an existing mortgage.
- Borrow from a vast selection of online, peer-to-peer lending networks.
Even in a depressed economy, small business owners have many options to fund their business. Each option has its advantages and disadvantages, so it’s just a matter of figuring out which method is best for your personal situation.