Should You Use Personal Asset Loans to Fund Your Business?

Should You Use Personal Asset Loans to Fund Your Business?

Even though the worst part of the Recession has past us over, there are signs that at least some parts of the economy have not yet fully rebounded. There are certain traditional credit markets still closed to the vast majority of small business borrowers.

While many types of alternative lenders have since emerged to help fill in the financing gap, lately the use of personal asset loans has been garnering a lot of attention and popularity. But, do the risks outweigh the benefits of this kind of short-term financing? In my humble opinion the answer is no.

What Are Personal Asset Loans?

While most people have heard about home equity loans or securing a bank loan with a valuable personal asset, the new class of personal asset loans work a bit differently. They are short-term loans that are secured with "luxury assets," things like boats, classic cars, fine art, antiques, gold, and jewelry. You can think of the lenders that offer these products as a kind of "luxury pawnbroker."

To get started, borrowers will need to fill out an application in which they describe the asset and the estimated market value. After the item has been appraised, the lender will typically offer borrowers 50-70% of their asset’s resale value.

Loans of this type tend to range between $5,000 and $100,000 dollars with a 2%-4% monthly interest rate, and the repayment period is generally no more than six to twelve months. If borrowers accept the terms of the contract, then the money is usually wired to them within 24 hours.

Should You Use Personal Asset Loans to Fund Your Business?

The answer to whether or not you should be using this kind of financing for your business really depends on your situation. If you can’t repay your loan, you will lose your valuable assets. So, you would first have to be certain that you can either repay on time or be comfortable with giving up the item(s) used to secure the loan. Plus, since the average interest rate of 2.49% to 3.99% percent is monthly, personal asset loans are more expensive than they seem. A monthly interest of 2.5%-4% works out to 30%-60% annually.

Finally, if your business is already generating income, then you already have other, less risky financing options to choose from that are based on business assets as opposed to your personal ones. The most prevalent choices include: business cash advances based on future credit card sales or total revenues, invoice factoring, and equipment leasing.

In short, personal asset loans are filling a need in the alternative business financing landscape, but they are not recommended by me. Like I said, if your business is already generating revenues, you have better options at your disposal.

Click here to apply online or call us toll free at 1-440-847-9448 and we can help you explore those options properly, so you can make a good decision for your business.

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