Have you been dreaming about launching a startup? Do you have enough cash to fund your new business? If not, getting a lending solution is a widespread tactic for many people these days. You may not have instant access to your savings or even have no savings at all.
So, people consider taking out a payday loan to support their money needs. While it may be helpful for unplanned expenses, getting this loan may also affect your business. Keep on reading to find out when payday loans may harm your venture.
What Makes Payday Lending Popular?
This lending solution has become really widespread lately. A payday loan is a short-term lending option given to the borrower for two or three weeks (generally until the next salary day). This is a small amount of cash between $100 and $1,000 that may be utilized for covering unforeseen costs. It’s quite easy and fast to obtain this lending solution. There are many online lending companies that offer digital application processes and quick funding.
The applicant needs to repay the whole amount in a lump sum on the next payday. The amount of debt together with the interest rate and other applicable fees may be withdrawn directly from the borrower’s bank account. It’s important that a person has enough cash on this account to make an on-time payment without delay. If not, late charges and additional fees may build up.
Payday Loan for Business Needs
Can you take out a payday loan for covering your business needs? Many borrowers who are just planning to launch a startup don’t have their business credit history so they can’t qualify for a small business loan. On the other hand, getting a payday lending solution is suitable for every consumer. It doesn’t take a lot of time to request additional money from a lender and fund your needs. Besides, creditors don’t ask about the purpose of the loan so you may utilize the cash for multiple needs as well as business expenses.
All credit holders may also benefit from payday loans, bad credit consumers may apply and obtain extra funds within the same business day. It saves a lot of time and effort as conventional lending institutions prefer not to deal with such borrowers. If you need up to $1,000 for your personal or business needs, getting a payday loans Manitoba may sound like a reasonable choice. However, there are downsides as well.
How Payday Loans Can Harm Your Business
You may be tempted to request a certain sum for a couple of weeks. It may be a smart decision provided that you have a steady source of income and will be able to return the whole amount on time. Yet, there are downsides to getting this lending solution. It may harm your business in the following way:
#1 Damage Your Credit Score.
Generally, this lending solution isn’t meant to harm your credit. However, the main demand is to pay the debt off at the end of the repayment schedule that is in two or three weeks. If you don’t have enough funds to repay this sum or forget about the due date, your rating may be temporarily lowered and a new credit account will be opened in your name.
#2 Trap You Into a Debt Cycle.
This is one of the biggest concerns. You may request a certain sum today as you feel pressed for cash. However, at the end of the repayment term, you may be short of funds again and take out a new loan to repay the previous debt. This cycle can be really endless and vicious as it’s hard to get out of it. Interest rates accumulate and late fees and additional charges seem to pile up.
#3 Problems With Getting a Business Loan.
Remember that you have your personal credit score and business credit rating. Besides, every company and institution may view your score differently and have various calculation criteria. Thus, your rating may be affected in a different way in each organization. Some companies consider payday lending negatively and suggest borrowers who apply for such loans are less reliable. You may face issues with getting a small business loan next time you want to expand your venture.
When You Shouldn’t Take Out Payday Loan
As you can see, payday lending isn’t a cheap solution. It comes at high-interest rates that are often above 400% and extra fees and charges. Some lenders charge origination fees, prepayment fees, late fees, etc. It can be painstaking and tedious to repay the debt unless you are sure you can afford it.
Hence, do not take out a payday loan if you are already deep in debt. If you have any other loan that needs to be repaid consider dealing with it first. Also, do not request a new loan if you are offered too high interest as it’s not worth it.
Consider saving some money or asking your friends and family to help you. Compare your options so that your credit history doesn’t get damaged and a lending solution doesn’t harm your business.