Most of the time businesses that are starting up need outside funding to help them become established. This usually means borrowing money from outside sources. Even if it's not for a business, you may encounter an emergency that forced you to borrow cash. As such, you'll have to consider whether to borrow from a lending company or relatives. Each of these options has its advantages and disadvantages that you must consider when deciding who to borrow from.
Pros of Borrowing from Lending Companies
Legal Protection
Working with a leading company ensures you draw a legal contract that outlines all the terms, including business ownership and duration of payment. This protects both of you as it allows you to make the agreed amount at the stipulated time which doesn't happen when you borrow from family and friends. Relatives may change the payment plan along the way or they may assume some percentage of ownership of your business. Since there isn't a contract, you may end up losing more than you gain.
More Freedom
Even with a verbal agreement, friends and family may assume they have control over your life in general. They may try to have their input in most decisions you make, something that you won't experience with lending companies. For instance, a family member may convince you not to make a big purchase like a car or house based on the fact that you owe them money. Lending companies won't have such issues as long as you keep up with the payment plan.
Reliability
Borrowing from a family member or friend doesn't come with a guarantee because they may change their mind anytime. This is unlikely to happen if you borrow from lending companies, even those operating online. With them, once you get approval, the money is guaranteed. Many companies cater for easy installment loans online for you to choose from which means you're bound to have a better deal than you would with a family member or friend. The reliability that such lenders have is crucial especially when you need the money urgently and you have a bad credit history. All you have to do is check out a few of them and pick the one that's offering the best deal.
Cons of Borrowing from Lending Companies
Strict Requirements
Lending companies handle their business like any other. They want to make profits and that's their priority. This means they'll make it a point to know how their money is being spent. It's not enough that they have to a thorough background check, they also have to ensure that you're using the money for the exact purpose you borrowed it. For instance, if you borrowed the money to buy new stock, you have to prove that you didn't use the money on anything else. You also have to wait for some time for the loan to be approved which isn't ideal if you have an emergency.
Pros of Borrowing from Family and Friends
Simple Process
The process involved when trying to borrow money from lending institutions is long and tedious. Even online lenders who may not need a credit history still do a background check to ensure you're able to pay back the money. With family and friends, you can get the money as soon as you ask. They already know you and will therefore not put you in a position to prove that you're worthy of the loan.
Lower Interest Rates
In comparison to lending companies, the family still gives lower interest rates. Immediate family may not even charge you interest. You have to be careful though and get some kind of legal agreement to avoid a situation where they may change their mind along the way and ask for something more.
Cons of Borrowing from Family and Friends
Strained Relationships
Money tends to change relationships and can destroy a family. You could disagree with the family member whether you succeed or fail. In success, they may want a part of the business and if you fail, you may not pay the loan back which will be a problem. Also, the friend may disclose your private agreement around the neighborhood thereby causing more strain and embarrassment.
Conclusion
Whether to borrow from a lending company or friends depends on personal preference which differs from every person. You can weigh the pros and cons of each then make a decision depending on your situation. If you think your bad credit will prevent you from getting a loan from either option, you can try easy installment loans online. You may get a loan through them but you'll pay higher interest.
Pros of Borrowing from Lending Companies
Working with a leading company ensures you draw a legal contract that outlines all the terms, including business ownership and duration of payment. This protects both of you as it allows you to make the agreed amount at the stipulated time which doesn't happen when you borrow from family and friends. Relatives may change the payment plan along the way or they may assume some percentage of ownership of your business. Since there isn't a contract, you may end up losing more than you gain.
More Freedom
Even with a verbal agreement, friends and family may assume they have control over your life in general. They may try to have their input in most decisions you make, something that you won't experience with lending companies. For instance, a family member may convince you not to make a big purchase like a car or house based on the fact that you owe them money. Lending companies won't have such issues as long as you keep up with the payment plan.
Reliability
Borrowing from a family member or friend doesn't come with a guarantee because they may change their mind anytime. This is unlikely to happen if you borrow from lending companies, even those operating online. With them, once you get approval, the money is guaranteed. Many companies cater for easy installment loans online for you to choose from which means you're bound to have a better deal than you would with a family member or friend. The reliability that such lenders have is crucial especially when you need the money urgently and you have a bad credit history. All you have to do is check out a few of them and pick the one that's offering the best deal.
Cons of Borrowing from Lending Companies
Strict Requirements
Lending companies handle their business like any other. They want to make profits and that's their priority. This means they'll make it a point to know how their money is being spent. It's not enough that they have to a thorough background check, they also have to ensure that you're using the money for the exact purpose you borrowed it. For instance, if you borrowed the money to buy new stock, you have to prove that you didn't use the money on anything else. You also have to wait for some time for the loan to be approved which isn't ideal if you have an emergency.
Pros of Borrowing from Family and Friends
The process involved when trying to borrow money from lending institutions is long and tedious. Even online lenders who may not need a credit history still do a background check to ensure you're able to pay back the money. With family and friends, you can get the money as soon as you ask. They already know you and will therefore not put you in a position to prove that you're worthy of the loan.
Lower Interest Rates
In comparison to lending companies, the family still gives lower interest rates. Immediate family may not even charge you interest. You have to be careful though and get some kind of legal agreement to avoid a situation where they may change their mind along the way and ask for something more.
Cons of Borrowing from Family and Friends
Strained Relationships
Money tends to change relationships and can destroy a family. You could disagree with the family member whether you succeed or fail. In success, they may want a part of the business and if you fail, you may not pay the loan back which will be a problem. Also, the friend may disclose your private agreement around the neighborhood thereby causing more strain and embarrassment.
Conclusion
Whether to borrow from a lending company or friends depends on personal preference which differs from every person. You can weigh the pros and cons of each then make a decision depending on your situation. If you think your bad credit will prevent you from getting a loan from either option, you can try easy installment loans online. You may get a loan through them but you'll pay higher interest.