I think we can all agree that in recent years, small business financing with private lenders has picked up a lot of ground against their more well-established peers, like banks and other institutions. This is because they are a lot handier than the latter.
Moreover, one might not need to provide as much documentation to them. But anyway, the question is: should you consider private lenders as a source of financing for your small business?
You be the judge after we outline some of the pros and the cons.
Why Private Lenders Are a Great Alternative
- If you’ve ever needed financing before and sought it from some alternative lenders, you were probably taken aback by the fact that most of them wanted some control over your business in order to provide the financing.
There are very few business owners ready to put up with that. Lenders that are not affiliated with any bank won’t need to become members of your business. The process, however, is still the same. Lenders will weigh in the decision for some time, in order to see whether or not your business is worthy of financing or not.
- Private lenders provide better repayment plans. You’ll discover that these lenders are actually interested in giving you the best possible terms. They’ll tailor a repayment plan that works for both you and them. So, apart from the funding you need, you’ll also be given fantastic terms and possibly counselling.
- They aren’t afraid of taking risks. In fact, this is what being a private lender is about. A lender can do as much diligence as he pleases, but he still cannot be 100% sure that his investment is profitable. Banks – and you probably know this by now – are not very keen on taking risks. A private lender thrives on that.
- They actually take a look at your business plan. If the investment is still seen as a risk, a bank representative will pack your plan up and show you the door. A private lender, will give you some advice on how you can better it.
Disadvantages Working with Private Lenders
To be fair, these “disadvantages” are the consequence of people badmouthing the private lending domain. For some reason, many think that this isn’t legal and that all private lenders are dabbed in loansharking.
This couldn’t be farther from the truth. Even though working with a private lender is highly advisable if you have a small business, this partnership can come as a package deal with some downsides, too.
For small business financing, these disadvantages are:
- Higher interest rates (not always, but generally)
- You may not get some of the tax deductions you’d get from “conventional” lenders
One thing is sure: getting loans from a private lender is so much easier than getting them from banks. This is the main reason why many business owners today choose to go with lenders in the private sector.
The process is simpler and the requirements are not as draconian as they are with the banks. All in all, it makes more financial sense to borrow money from someone who is actually trying to help you by creating repayment plans to fit your schedule and sales-cycle.
The “Third Party Circle” of Private Lenders for small business financing
The Third Party Circle of Private Lenders is comprised of lenders you have no affiliation to because you don’t even know them, to begin with. The First and Second Circles are comprised of your family and friends and their friends.
Yes, your family can be taken as a private lender. You’ll still get the money, and it will be easier to pay it back knowing that they won’t change terms or anything.
The lenders in the Third Party Circle are investors you can find on the market. All you have to do is look for them. You can do this on the Internet. Most business owners decide to borrow money from lenders in the TPC.
Small business financing last thoughts
Taking a loan for your small business from a private lender is highly advisable. As you’ve seen, there are many perks waiting for you. In case you feel like you don’t know enough yet about this topic, please contact us on 1300 138 188 for a free consultation today.
You’ll be in good hands, as our team of professionals will pick up your enquiry and will provide you with valuable free consultation. With all this being said, we hope you make the right choice.
A private lender should be, without a doubt, your go-to source of financing for your business, no matter if it’s small or already a titan on the market.