It is impossible to run a business without requiring a loan of some sort during the course of the business’ life. Business owners who are able—at any stage—to use business revenue rather than loans are few and fortunate. However, when the time comes to take out loans, most business owners prefer unsecured small business loans, rather than loans that place their personal or business assets at risk.

The initial state of starting a business is all about planning. Banks might approve personal loans, but will not approve unsecured small business loans for a business that does not yet exist. At this stage of the game, most business owners finance this research and business plan development with their own assets, or with unsecured small business loans from friends or family.

When it is time to start the business, banks are still very hesitant to lend to an unproved entity. Business owners are required to show substantial personal investment, responsible management of their own finances and very good credit histories to acquire any funding at all, but will almost certainly have to pledge personal and business assets as collateral until they have a record of accomplishment.

The early years of a business are a good time, however, to establish a line of credit to allow for fluctuations in cash flow and to make minor purchases. Whether a small business is able to obtain a secured or unsecured credit line will be determined by the initial evidence of the business’ stability and promise, as well as the owners’ personal finances.

Unsecured small business loans are appropriate and possible for the expansion and growth phase of business. Business owners should be able by then to show years of positive cash flow, steady sales, good management and to project an increase in revenue that will make it possible to repay small business unsecured loans.

Ask a lender for an unsecured personal loan, and chances are nobody at the bank is going to ask why you want the money; a lender’s primary concern is whether you’re going to pay it back. The decision of whether or not to make the loan will be based on little else but your credit history and income.

But, just because an unsecured personal loan can be used for just about anything your heart desires—no one is going to stop you from using the money for plastic surgery, a vacation or an in-ground pool—that doesn’t mean it’s always a good idea to use it for any of those things.

So, what’s the best use of an unsecured personal loan? Paying off any other debts. Here’s why:

•    Your unsecured personal loan will have a lower interest rate than most credit cards.
•    Your unsecured personal loan will have a fixed interest rate, instead of the variable rate of credit cards.
•    Those advantages will allow you to pay off your debt faster and save money you would have spent on interest charges.
•    Your unsecured personal loan looks better on your credit report than a revolving credit card account with a balance of more than 25% of the limit.
•    Consolidating your debt means you’ll have a lower utilization rate, i.e., less of your available credit in use, and a lower utilization rate means a higher credit score.
•    That higher credit score means you’ll pay less for a mortgage; have a better shot at getting your dream job and even pay less for car insurance.
•    If you decide to start your own business, your ability to secure your first bank loan will be based almost entirely on your credit score.

An unsecured personal loan can be a dangerous thing in the hands of someone who has a hard time with delayed gratification. But, if paying off credit card debt is your goal, an unsecured personal loan can help you achieve it.

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Personal Loan Rates a Better Bargain for Debt Consolidation

It’s more than a little ironic that most people borrow money to cover expenses they can’t afford, yet some loans and credit cards come with interest rates so high that they’re unaffordable. That used to be the case with personal loan rates, but right now they’re a lot less expensive than many credit cards.

Today, the average interest rate is down to 12% for unsecured personal loans with terms ranging from 12 to 60 months, but there are a lot of banks offering personal loan rates lower than that.

Compared to average credit card rates of 11.68%, the average personal loan rates are slightly higher, but because revolving credit card accounts have variable interest rates compared to the fixed rates of personal loans, personal loans are the better bargain. And, of course, 33% of credit card issuers have raised their interest rates this year, many as high as 29.99% or more.

To get some idea of how much money those lower personal loan rates can save when used for debt consolidation, take a look at these figures:

• Today the average household carries $8,924 in total credit card debt. If that household is among the millions whose interest rates have been increased to 29.99%, the five-year, payoff will cost $288.67 per month.
• In comparison, if the credit card debt were paid off with the average personal loan rate of 12%, in a five-year payment period the monthly cost would be only $201.23—a savings of $87.44 per month or $5,246.40 over the life of the loan.
• The average interest rate for balance transfer cards is now 14.54%, so if the card holders in the average household consider that route for paying off high interest cards, they can expect to pay $210.15 monthly, in addition to the balance transfer fee that is typically 3%.
• So again, using the credit card debt of an average family, the balance transfer fee will be an additional $267.72.
• The total savings of using a personal loan to pay off credit card debt compared shifting it to a balance transfer card is $802.92.

When you do the math, personal loan rates are by far the better bargain.

Sometimes balancing a budget is like standing on the bank of a creek, wondering if you can make it to the other side in a single leap without landing in the water. Those are the times short-term personal loans can help bridge the gap.

Examples from my own life:

• My husband bit into a piece of pizza this week and broke off a molar. He saw the dentist yesterday and was quoted $1,179 for a crown. Right now he’s in no pain, but if that changes, we’ll probably look into short-term personal loans.
• I’ve lost my bifocals. Under ordinary circumstances I could replace them without much of a hardship, but the holidays are upon us, and our budget is stretched thin already.
• Ordinarily, we’re able to cover additional holiday expenses without going into debt, but this year we committed to buying gifts for three boys from a disadvantaged family … and then a family friend suffered a serious injury, and we offered to help buy gifts for her two girls, too.  Given the financial situations of both families, even short-term personal loans are out of reach for them, but my husband and I still have jobs, so will be able to acquire loans if we have to.
• And, in the midst of all this, our dog has gotten sick, and this week’s trip to the vet’s office cost nearly $400.

We’ve never taken out short-term personal loans in the past, but there does seem to be a “perfect storm” gathering, and if the rains come, the creek may become dangerously flooded.

While short-term personal loans sometimes come with high interest rates, because so many credit card issuers have recently jacked-up their interest rates, the short-term personal loans may actually be cheaper. Besides that, many people have elected to close their credit card accounts to avoid the higher interest rates, meaning short-term personal loans may be their own option for making it to the other side of the creek.