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It seems that in this day and age, many people are starting their own businesses, and the degree of success can range from absolute failure to unmitigated success. Self-employment is all the rage because who wouldn’t want to be his/her own boss? When a prospective business owner begins to create a plan and consider financing options, one of their viable solutions is a bank loan. When considering self-employed loans, it is wise to understand every step in the process, including the reasons to obtain or decline such a loan.
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BENEFITS
The first thing to consider is the obvious benefits of obtaining this kind of loan. It can be difficult to find the appropriate amount of capital to start your own business, but that is exactly what most aspiring business owners in the U.S. are attempting to do. Thankfully, banks have made it a bit easier for those who are self-employed to obtain a loan if necessary. While the banks will definitely look into the prospective borrower’s financial history, the surrender of bank statements will not generally be necessary, and funds are typically readily accessible.
Additionally, because of the acceleration of small businesses in this country, there is a wide variety of lenders who recognize the potential of these loans and are willing to work with the self-employed. And while it is advantageous to have a good credit score, the actual acquisition of this kind of loan can help improve an individual’s credit score.
Another popular trend appears to be that of borrowing money from friends and family. While it may seem beneficial in the short-term to borrow from these people who are related to you or you’ve known for years, consider some of the disadvantages. More than likely, you are going to feel the need to justify your actions, the possibility of creating potential rifts…and ultimately, the question is: What may happen if you are unable to pay back that loan? When it comes to being self-employed, sometimes you might be tempted to let these people who are close to you have some control and say within your business if they have loaned you money. Instead, if you obtain a self-employed loan, you will retain full ownership and not feel beholden to anyone except your lender.
CHALLENGES
While there are some fantastic benefits to these self-employed loans, be sure to consider the potential challenges and hurdles you may face as well. It is always prudent to look at both sides of the issue before making your final, informed decision.
One of the biggest issues you will face is that of not having any “safety net.” When you take out that loan, it may give you a cushion, but if you have no other savings or capital, you may find yourself second-guessing whether you should get that loan or not.
In addition to this, a lot of what you learn about finances is “on-the-job” or “do-it-yourself.” Many self-employed people have not studied business in college, and they may not feel they have the finances to obtain that knowledge from an industry professional. You can invest all the time and resources you have in research in this area, but when you go to apply for that loan, you may still be at a disadvantage when it comes to understanding the financial landscape.
Small business owners may also tend to underestimate their net worth. All too often, they are willing to accept a smaller loan or one with a greater deal of risk because they tend to sell themselves short. It is vital to the self-employed to spend some time learning these skills and truly understanding the entire process of this loan agreement before making any decisions.
