Editor's choice: Monevo personal loans
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So you’ve got a real job, but took on some work on the side to earn some extra cash. Now you’re thinking of taking a shot at becoming a full-time YouTube star or committing more time to your Etsy store.
Growing a business takes some cash upfront — even if it’s freelance work — and a personal loan can help you cover the initial costs. But it can be a gamble, since you’ll be on the hook to pay back that cash if your business isn’t as successful as you’d predicted. We break down when taking out a personal loan for your side hustle can help and when you might want to hold off.
It depends on factors like your overall personal finances, what you plan on using your loan for and where you think your business is heading financially. If you’ve got good credit, few personal debts and a steady income, you’ll likely to be able to qualify for a personal loan with a competitive rate. If not, you could have trouble getting approved for the amount you need.
Haven’t made a business plan with financial projections yet? Do that before you look into your financing options. It’ll give you a better idea of where you’ll be heading financially and how much debt your business can realistically afford to take on.
It’s also a good idea to have a specific plan for what you’ll use your funds for. You may want to consider looking into other types of financing, like a personal line of credit if you expect to need funds for ongoing expenses like renovations or purchasing inventory while you’re building up your revenue.
Fees are less common on personal loans than business loans, so interest is likely to be your main cost. Interest is a percentage of your loan amount that you pay each month on top of repaying the money you borrow. Lower interest rates translate into lower loan costs.
To qualify for a low-interest loan, you’ll typically need to have:
Consider paying off some of your debts to increase your credit score and lower your DTI before you apply so you can qualify for more competitive rates.
You also might want to prequalify with multiple lenders to learn which can give you the lowest interest rate. Most online lenders let you prequalify by filling out a quick form on their site and can give you an estimate of what your rates might be in a matter of minutes. Prequalification usually only involves a soft credit check, so your credit score won’t be impacted if you preapply with multiple lenders.
Putting money into your side gig is sometimes exactly what it needs to grow into a full-time job — or even just become more profitable. For example, forking funds into something like research and development can help you develop a better product that customers are more likely to buy and pay more for.
Here are some tips to make the most of a personal loan for your side hustle:
A personal loan could be the boost your side hustle needs when you’re ready to take it to the next level. But it isn’t right for every business. You’re still on the hook for paying that money back even if your business fails, which can be difficult if you’ve lost your source of income. Researching lenders, coming up with a plan for your business and knowing exactly how your side gig could use the funds are key to making the most of a personal loan.
Think a personal loan might be a good idea? Get started by visiting our personal loans page, where you can learn more about how they work and compare lenders.
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