Starting a business and overcoming the endless challenges that arise during the initial few months or years is arguably the hardest endeavor that every entrepreneur must face. There is a reason, after all, why Forbes reports that as many as 80% of all ventures fail within the first five years. To avoid becoming a part of the said statistic, businessmen and women must solidify their strategies, address critical start-up concerns, and, most importantly, secure appropriate capital.
Getting access to the necessary amount of funds is easily the most important step in the early stages. This is because of the innumerable costs, some of which are not even accounted for, that the company will have to cover as soon as it becomes operational. Since it usually takes a few months to harvest enough demand to start making decent sales, those who do not have a safety margin could see their endeavor get crushed by perpetual overhead expenses. Enter self-employed loans.
As one of the most common ways to overcome the aforementioned struggles, loans for sole proprietors have become quite popular in the past few decades. Unlike traditional investing, they provide a wide range of benefits that can help businesses get past the barriers to entry. So, what are some of the greatest benefits of getting a self-employed loan?
Easy Verification and Quick Approval
Unlike typical loans, which include mortgages, auto, and personal ones, the self-employed loans are nowhere near as hard to get. Although the entrepreneur still needs to showcase a decent credit standing, they will seldom have to submit a ton of paperwork that other lenders require. For instance, someone who is looking to get a mortgage will generally have to showcase everything from their last five tax returns to the most recent bank statements. Self-employed loans, on the other hand, are a lot more accessible as the most significant requirements revolve around someone’s credit score and business plan.
Besides, companies that specialize in these types of loans are almost always able to grant fast decisions to the applicants. Regardless of the outcome, anyone who applies will have an idea of their chances to get the funding within just a few days. If this is compared to how car loans or mortgages operate, the difference is quite obvious. In the case of the latter, per se, approval is just the starting step that must be accompanied by additional paperwork, verifications, and maybe even phone or video interviews.
No Loss of Equity
Outside of borrowing money to start or grow a business, entrepreneurs mostly rely on selling the company’s equity in exchange for the much-needed capital. The main perk of doing so is the fact that there is usually no interest that comes with the money as it does not have to be paid back. Unfortunately, this benefit does not outweigh many issues that arise when someone gives up a part of their business. Just consider, for example, a businessman who sells 10% of their start-up for $100,000 and goes on to earn $10,000,000 in the next year. This means that they automatically lose $1,000,000 of those profits because the investor who only put in $100,000 is entitled to one-tenth.
Self employed loans further have an unparalleled ability to help one build their credit. While the interest rate will likely be on the higher end of the spectrum, the long-term effects of making timely payments are invaluable. By repaying the loan, one’s credit score will slowly rise and they will be able to almost effortlessly get funding in the future. This will also allow them to qualify for more favorable contract terms in case they ever need to make hefty purchases of business assets or enter into long-term leases.
Finally, getting approved for a self-employed loan is much easier than it is for most other types of borrowing. The reason why is that the requirements are a lot looser here than they are in most other industries. Some examples include lower income thresholds, more flexibility on acceptable paperwork, and so on. It is important to note, though, that the entrepreneur’s interest rate will have a direct relationship with the level of risk that their application is assigned. That means that those who cannot present strong documentation and a valid spending track record will end up paying reasonably high premiums.
Even after the interest is accounted for, the advantages that one could derive by taking out a self-employed loan certainly offset it. Those who may have all of their expenses covered but lack the safety margin should also look into this form of funding. Doing so could save their business in a situation where they face an unplanned expenditure or any downturn in the market.