In this day and age, it’s remarkably common to find people with a side hustle. According to PYMNTS Intelligence, around 40% of Americans have a side gig.
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Some side hustlers earn only a few hundred dollars a month, while others earn much more than that. Forbes found that the average side hustler brings in about $12,689 a year — a little over $1,000 a month.
If you’re hoping to supplement your regular income or even build a small business someday, using a personal loan could help you get started with a side hustle.
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Use the Funds To Purchase Essentials
Are you interested in crafting and selling the things you make? Building up inventory for a reselling gig? Or maybe you just need upgraded tech to keep up with your hustle’s needs. Whatever your gig, you’ll probably need some equipment and inventory to get you started.
You can use a personal loan for nearly any reason — provided the lender doesn’t stipulate against it. This means you can use the funds to purchase inventory, supplies, equipment and more.
This is good news for those who want to sell digital products, too. After all, you might need to pay for things like website hosting, tech equipment or software programs to make courses, books and other products.
Notably, personal loans come in all sizes, ranging from as low as a few hundred dollars to $100,000 or even more.
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Personal Loans Could Get You Started Sooner
If you want to launch a side hustle that will eventually become a business, you might need financing. For some small business owners, this comes in the form of a business loan.
Small business loans often have stringent requirements. For example, your business might need to be at least two years old or bring in a certain amount of revenue — things that just aren’t feasible for new side hustlers.
A personal loan could be a way to get around the strict funding criteria. They’re usually easier to get and, like business loans, you’re still responsible for paying back what you owe, usually with interest.
“One thing many people don’t know is that small business loans typically require a personal guarantee, so even if you’re able to get a business loan, the owner’s typically personally on the hook anyway,” said Carolyn Katz, who runs the funding group at Score NYC, an SBA-sponsored nonprofit. “And the SBA [Small Business Administration] loan process can be quite time-consuming. So often, for manageable amounts of money, personal debt can be faster and more flexible than business debt.”
Personal loans aren’t the only option. You could also theoretically use a credit card or home equity line of credit (HELOC) to start your side hustle. Again, be prepared to pay back what you owe, and pay attention to the interest rate.
Use the Funds To Make Money
You’ve probably heard the expression, “You need money to make money.” With a personal loan, you can launch a side hustle and potentially see great returns — but you’ll want to be strategic about it.
“If you’re using a personal loan to kickstart something that actually has the potential to make more money, that’s not reckless, it’s smart. Just be strategic,” said Joseph Camberato, CEO at National Business Capital.
Caberato’s advice is not to overthink things like building the perfect website or getting the branding just right. Instead, put the funds toward things that bring in revenue for your side hustle or business.
“Focus on cash flow first,” he said. This means prioritizing making sales, attracting customers and marketing.
Things To Think About Before Taking Out a Personal Loan
Any kind of debt carries some risk, so don’t take out a personal loan unless you’re ready. Here are some things to think about:
You have to pay it back: Debt has to be repaid. If you take out a loan without a clear repayment plan, you could end up facing issues like high interest charges, late fees or damaged credit.
Have some extra cash: This can be vital in making sure you don’t fall behind on payments, especially if your side hustle doesn’t start making money right away.
Be aware of interest rates and fees: These depend on factors like your credit score and the lender, but you’ll probably still have to pay interest on the funds. The average interest rate on a personal loan is 20.78% as of late May, according to Business Insider. Some loans also have origination fees ranging from 1% to 10% of the loan amount.
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This article originally appeared on GOBankingRates.com: 3 Ways a Personal Loan Can Help Launch Your Side Hustle
