The billion-dollar businesses started with a personal loan

At the start of many great fortunes are two basic requirements: A dining room table to map out ideas and a personal loan to get started.

Some of the largest corporations in America and some its biggest fortunes began this way.

Michael Dell, who has a fortune of more than $18 billion, began Dell computing with $1,000 from his parents. He started as a freshman in college by selling kits to help customers upgrade their own computers, using a direct-to-consumer approach the company still uses today.

Whole Foods founders John Mackey and Renee Lawson Hardy, whose business has annual revenues in excess of $14 billion and employs more than 88,000 people, started their original natural foods store, SaferWay, in Texas with $45,000 in personal loans from family and friends in 1978. Two years later, they merged with Clarksville Natural Grocery and Whole Foods Markets was born.

And Apple – the world’s first corporation to have shares worth a staggering $700 billion (almost twice the value of the next largest company, Exxon Mobil) – started with a mere $5,000 from friends of co-founder Steve Wozniak. A bit of trivia: Ron Wayne, the company’s third founding partner along with Steve Jobs, sold his 10-percent ownership of Apple in 1976 for $800. Today, his shares would be worth $60 billion.

What these stories have in common is that personal loans made possible their future successes and vast wealth.

But why personal loans?

The answer is that entrepreneurship in America routinely begins outside the established financial system. To get a “commercial” loan you must be able to prove credit, earnings and assets, things that new companies without a financial track record simply don't have. Jobs, Wozniak and Mackey were all college dropouts. Wozniak and Mackey were both 25 and Jobs and Hardy were 21 when their companies were founded. Dell was 19.To get traditional business backing, you usually need a solid professional history, extensive business plan and, essentially proof that the product will sell. That is not possible for most entrepreneurs trying to open their first store or developing their first prototypes.

There is an alternative, however: personal loans from friends and family – or from a nonbank marketplace lender such as loanDepot.

Personal Loans and Sources

In many cases, personal loans from family and friends are simply powered by good consideration, meaning the loan is made out of love and affection without typical criteria such as interest rates, collateral and a solid business plan. However, borrowing money from family and friends raise a number of questions: Will they get interest, shares, or both? How can a family member collect if a loan goes bad? Does anyone really want to sue their relative or discuss personal debts at a wedding or funeral? It’s unseemly at best and a source of family strife for years and years at worst.

The reality is that not everyone has family or friends with cash to lend — and even if they do, sometimes borrowing from such sources can be a uniquely unpleasant experience.

Another option is an unsecured personal loan from a marketplace lender, which represents a growing niche in the world of financing. They’re plainly loans, with a very real expectation of repayment and interest, but they are rather easy to get, usually more affordable than a credit card and don’t require collateral such as a home or vehicle.

At first it may seem odd that lenders make “personal loans,” but it’s true. To lenders, they are basically signature loan with terms that generally look like this: Financing based on the borrower’s credit score and credit history. Loan amounts can range up to $35,000 and the loans typically have relatively short repayment terms of five years or less. The funds can be used nearly any way you like, with some exceptions such as illegal activity.

Personal loans from lenders commonly require a brief application, a solid credit score and sometimes proof of income. However, this is very different from a commercial loan, which might require a book-length business plan or a mortgage application that includes numerous pages of paperwork and the use of your home as security.

How to Get a Personal Loan

If you want to get a personal loan there are several issues to consider:

First, how will the money be used? How much revenue is needed to repay the debt? When will the debt be repaid? Especially with family members, write out the details to help avoid future disputes and arguments.

Second, what about family dynamics? Are family and friends with money simply uncomfortable making personal loans? Some families are very good at sharing resources, others not at all.

Third, what happens if a potential family lender says no? Does this hurt your relationship? If a loan request is likely to be denied by a relative or friend, then a lender is likely to be a better financing source.

In the end, an unsecured personal loan may provide the financing you need to start a business without a lot of hassle, headaches or paperwork. For details, speak with a lender and see what options are available to you.

Call today for more information.