If you are a business owner or starting up your own business, what options do you have if you face financial stress? Startups typically take a lot of investment poured into them before they succeed. Founders often end up going into debt or working a second job to pay bills to finance their business. Even established business owners can face financial hardships, however.
One option might be a hardship loan. According to Lantern by SoFi, a hardship loan is a personal loan that allows you to borrow money during a time of financial crisis.
While it seems counterintuitive to take on debt to keep operations going, it is sometimes necessary. For example, a hardship loan can give you the breathing space to develop better solutions such as increasing profits or downsizing operations until you are again in the black.
There are several options to consider.
Borrowing money from family or friends
If you have a relative or friends who are well-off enough to be able to lend you money, then this is often a great option. Typically, friends or family members will charge no interest or low-interest rates. They also won’t hold your credit rating against you.
However, to ensure you don’t ruin a valuable relationship, it’s important to carefully discuss all terms before you accept a loan from someone you are close to. Make sure to specify the timeframe of the loan, the monthly payment schedule, and any interest and fees. A contract that has been read and signed by both parties is just as critical in this type of loan as in any other.
Be aware that there may be tax implications for sums greater than $15,000.
Payday alternative loans
Credit unions often provide payday alternative loans (PALs) to members. For those with a low credit score who are members of a credit union, this can often be the cheapest option if you need a loan. The term for repayment can be up to a year. The only downside? The amounts that are loaned are usually limited.
A personal loan might be a good idea if you have an asset such as a home, vehicle or savings account and a good credit score. Even if you need an unsecured loan or have bad credit, options may be available, but you’ll pay a lot more in interest.
Options to avoid
While there are several good or decent options if you need a hardship loan to help finance your business, there are also a couple of options that you should never try. These are:
– No-credit-check loans: You may end up being charged triple-digit interest rates on these loans to offset the risk of non-payment.
– Payday loans: While they are easy to qualify for, they charge outrageous interest rates that can leave borrowers in a cycle of debt.
If you want to learn more about hardship loans, you should check Lantern by SoFi. This is a great site to look at options for small business loans. It is an online marketplace that is easy to navigate that connects potential borrowers with lenders.