Mike Seper was no stranger to the zip line business when he started Eco Adventure Ziplines in 2017. The Missouri-based business is his second zip line facility since 2010. Despite the success of his first business, however, Seper needed help funding his new venture.
He had trouble finding a business loan because his new startup had no credit history or assets, so he turned to a personal loan and 0% APR credit cards to build a new facility.
The average medium-term business loan, which offers one- to five-year repayment terms, is $110,000, according to small business lending marketplace Fundera. Fortunately, Seper needed less than half of that to build his business. In the past few years, the business has done so well that Seper started a third business, Zipline Innovations, which provides safety gear for other zip line facilities.
As I interviewed Seper about his experiences, he shared three pieces of advice that other entrepreneurs can follow as they start their own businesses.
1. Be realistic about funding sources
Small business loans are often preferable for business owners because they don’t necessarily require you to personally guarantee repayment. But for the most part, business loans can be hard to get for startups with no business credit history or revenue. Microloans insured by the U.S. Small Business Administration are designed for new businesses, but the process of getting one can take months.
So while a personal loan and credit cards weren’t Seper’s first choice, he knew his options were limited.
“I think that’s the only way we were going be able to qualify for [funding] because there was no track record with that business,” said Seper. “Commercial lenders weren’t willing to lend money for a zip line facility when there was nothing they could really take from us if we were to go under.”
Personal loans and credit cards are easy to get if your credit is good. They’re unsecured by nature, so you don’t have to put up collateral to get approved. But using these products to fund your business also comes with drawbacks.
For starters, you’re putting your personal financial health on the line. If your business doesn’t take off, you’ll have to pay off the debt out of your own pocket. And if you can’t manage to repay the loan, a default could damage your credit, making it hard to qualify for affordable loans in the future.
Personal loans also tend to offer lower loan limits than small business loans, which is why Seper had to split his funding between a loan and credit cards.
It’s important to understand the benefits and drawbacks of using a personal loan to build a business, but it’s also important to be realistic about your options.
2. Have a solid business plan
Personal loans and credit cards don’t require a business plan to prove that your idea is viable. But it’s still wise to create one to avoid putting yourself in a precarious position.
“Some people let the excitement get the best of them and are happy to jump at whatever they’re offered,” said Seper. “Do your homework and make sure you have a viable product or service before going all in on something.”
Creating a business plan entails a lot of things, such as:
- A description of your product or service
- A market analysis detailing your audience and potential competitors
- Your marketing and sales strategy
- Financial projections, including sales, expenses, assets, and liabilities
Without a proper business plan, it can be hard to put together a solid strategy. And with a shaky strategy, your chances of failure increase, putting the burden on you to repay the loan.
3. Repay the personal loan as soon as possible
Since personal loans are unsecured, they often charge higher interest rates than small business loans. With excellent credit and a solid income, you might be able to qualify for a single-digit interest rate. But even some of the top personal loan companies charge interest rates as high as 30.00% or more.
Credit cards can be more expensive if you draw out your repayment plan. In March 2018, the average credit card interest rate was 15.32%, according to the Federal Reserve. Due to high rates, Seper’s top priority was to get rid of his credit card debt before the end of their 0% APR promotions.
But he didn’t stop there. He also tackled his personal loan debt by accelerating repayment.
“[My accountant and I] worked on paying things back as quickly as possible to get the interest that was occurring paid off,” he said. Seper doesn’t remember how long it took to eliminate the debt but remembers paying it off before the end of the loan term.
Don’t give up
Building a business isn’t easy, and you can be tempted to give up if things don’t work out as planned. If you’re using a credit card or personal loan to build your business, it’s important to be persistent.
“A lot of businesses fail because people give up on them and stop believing that they can make it work, and just turn their back on an opportunity that might be just right around the corner,” said Seper. “Perseverance is essential. Try to make it through the lean times. Don’t cut and run when things get hard.”
As you follow this advice and the other lessons Seper learned as he started his business, you’ll have an easier chance of building a successful startup. What’s more, you’ll improve your chances of getting through the process without putting too much strain on your financial health.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.75% – 16.24%1||$5,000 - $100,000|
|7.46% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|