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Thread: Reasons not to use a personal loan for my business?

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    Default Reasons not to use a personal loan for my business?

    I was wondering since my business got started it there were reasons not use a personal loan for my business. it's not glamorous but i take junked cars and sell the parts to local mechanic shops in my town. some people give me the darn cars for free just to haul them out of their yard. it's going good but i was going to try and get a business loan but i dont think the bank will think too much of it because i deal a lot in cash and dont deposit much. i got an offer in the mail i think it said it was from discover bank for a personal loan and am thinking about using that but am wondering if there is a risk to my business if i do that. thank you for this blog.

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    Unless you absolutely need it, stick to dealing in cash. Just keep your books in great shape and highly accurate records of all transactions for when the tax man calleth.
    Brad Miedema
    Fulcrum Saw & Tool

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    are you saying that there is a tax risk of using a personal loan for a business?

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    Nope. Cash is something that can be "easily" hidden, or skimmed, and than kept off the books so the government doesn't see it.

    The risk in the loan is that business slows down and you can't make the payments.
    Brad Miedema
    Fulcrum Saw & Tool

  5. #5

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    Quote Originally Posted by Fulcrum View Post
    Nope. Cash is something that can be "easily" hidden, or skimmed, and than kept off the books so the government doesn't see it.
    right. and that is why i think a personal loan has to be the way to go. because the bank cant see my true income either, i mean i can show them and be honest about it but if they only want to count whats going in and out of the account, its not going to be a whole lot. I know that the risk is that if i cant pay that could be trouble for myself. wouldnt do if i didnt think i could handle it. truth is i am just trying to take it to the next level. thank you for your help.

  6. #6

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    Quote Originally Posted by Adolphus View Post
    I was wondering since my business got started it there were reasons not use a personal loan for my business. it's not glamorous but i take junked cars and sell the parts to local mechanic shops in my town. some people give me the darn cars for free just to haul them out of their yard. it's going good but i was going to try and get a business loan but i dont think the bank will think too much of it because i deal a lot in cash and dont deposit much. i got an offer in the mail i think it said it was from discover bank for a personal loan and am thinking about using that but am wondering if there is a risk to my business if i do that. thank you for this blog.
    The risk is that you are personally guaranteeing the loan. The other is the risk of commingling your personal with your business and piercing any corporate veil that you have set up. So if you use a personal loan, either use the proceeds to make a loan to your separately set up business or classify it as a capital contribution. You're still on the hook personally if you default but it helps keep up the level of separation between you and your business.

    Did you move through with the loan with Discover Bank? I am mulling all my options for a personal loan for a new business I am starting up and had not heard that Discover did anything other than credit cards. You can private message me if you don't want to publicly reveal the details.

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    If you haven't set up an LLC and are running it as a sole proprietorship, then it's not commingling funds because you're basically running your business as extra income.
    However, you should keep a record of all personal funds loaned to the business. Especially if you are taking out lines of credit to finance the business.

    If you are already an LLC, then yes you can still loan the business money, and you still need to keep accurate records of it.

    I bootstrapped when I started so every dollar was personal funds. Back then I didn't worry about any of that, if I needed something and I had the money I purchased it. Took me a couple of years to get my business finances in order to where there was separation. I'm not saying not to worry about it, you should of course strive to do things the right way and keep the proper accounting...but you also do what you gotta do to get your business off the ground. Assuming we are talking about hundreds or low thousands and not tens of thousands.

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    Quote Originally Posted by Adolphus View Post
    I was wondering since my business got started it there were reasons not use a personal loan for my business. it's not glamorous but i take junked cars and sell the parts to local mechanic shops in my town. some people give me the darn cars for free just to haul them out of their yard. it's going good but i was going to try and get a business loan but i dont think the bank will think too much of it because i deal a lot in cash and dont deposit much. i got an offer in the mail i think it said it was from discover bank for a personal loan and am thinking about using that but am wondering if there is a risk to my business if i do that. thank you for this blog.
    Another thing you should do is compare the interest rate to at least a couple other options. Make sure there is no origination fee. I don't think there is with Discover but it would be good to double check. Goldman Sachs offers personal loans now too through their new brand called Marcus. There's no origination fees or even late fees but I don't know how the interest rates compare to Discover.

  9. #9

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    If you are thinking to get a personal loan that to not from a bank but from some other source, then there are various commercial financier who can help you get immediate cash flow. Such corporations can help you in getting a personal loan. One such trusted corporation is Prestige Capital Corporation. You can avail factoring services of such firms and get your requirement fulfilled. My brother has consulted Prestige Capital Corporation in his hard times. Hope this suggestion could help you.

  10. #10

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    After seeing and experiencing the downside of signing personal guarantees for business loans I would consider the decision to borrow any money very carefully.

    Look at every option for bootstrapping and building the business organically. If the business is a good business then it will grow and finance itself.

    In a way by taking a personal loan and lending it to the business is your decision to take on the risk that a bank decides is too risky!

    However, if you can build a very compelling business case (lots of cash flow with low risk!) then it may be worth taking the risk.

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