Are you desperately trying to secure funding for your new business? This can be an exciting time in your life and starting a new venture is a worthwhile challenge. But, it can be difficult to secure all of the funding you need to get the doors open.
One option that a lot of people consider is taking out a payday loan and using it to fund their new business. However, this is not an avenue that business experts recommend going down. Let’s take a closer look at why.
What is a Payday Loan?
First of all, it is important to understand what a payday loan is. Essentially, this is when you are able to get a short-term loan and access cash that you need. They were designed to help people before their salary arrived at the start of every month. In particular, they could help with expenses that suddenly popped up and you needed help paying for.
There are many reasons why a payday loan can seem appealing compared to other options out there. For instance, it can be easy and quick to access the cash you need for your new business. You can even get approved if you have bad credit. There also tends to be fewer requirements when it comes to securing the loan compared to choosing other lending providers.
However, business experts believe that payday loans can be predatory. In particular, they do not check if you can repay the money and this can mean that people are approved for unaffordable loans. This often leads to individuals having to get another loan just to pay back the first one. There is a possibility that you can get some of your money back through a payday loan refund company. You can read about the top companies in the UK that can help at Business Cobra if you have been given an unaffordable loan. One of the best ways to avoid this happening to you is to try to avoid payday loans altogether. This is particularly true if you are going to be starting a new business.
Reasons to Avoid Payday Loans
There is no doubt that payday loans can be enticing. This is why a lot of people fall into the trap of getting one. But, you have to be aware of the disadvantages of this lending option. This way, you can weigh up what is going to be best for your new business. So, let’s take a look at the reasons to avoid payday loans.
High Interest Rates
If you have bad credit, you might think that it is too good to be true when you are accepted for a payday loan. Well, often you are going to be correct. One of the ways that payday loan providers protect themselves is by applying high interest rates to the amount of money you borrow. This means for quick and easy access to cash, you are going to be paying a lot more back. This might not be the best move for your business when you are trying to get it off the ground and running. Often, this is one of the reasons people run into trouble. They cannot afford to pay it all back.
Easy to Spiral into Debt
Perhaps when you first start thinking about getting a payday loan, you think that you will be able to pay it back without a problem. After all, you will invest this money into your business and the profits will allow you the cash to pay the provider. But, when you first open your business, you cannot predict how much money you are going to make. You are just at the very beginning of your journey and you cannot guarantee the profits you will make nor any other expenses that are going to come your way.
Bad For Your Credit Score
If you do not have the money to pay back the loan you agreed to, this is going to get you into trouble. Not only will you have charges to deal with, which makes the payday loan even more expensive, but you can actually damage your credit score. This is going to affect you personally moving forward. In other words, you will have trouble getting another type of loan in the future or even a mortgage. So, while you might think that it is worth it for your business, payday loans can have seriously negative effects and this can affect other aspects of your life.
