Everything you need to know about Private Business Loans

Private business lending is by definition a nonbanking practice. If you were to go for a business loan, in its more traditional sense, then you would have to apply to a bank. You could seek a loan from a nonbanking financial institution such as investors, hedge funds or venture capitalists. That too would qualify as private business lending. Any financial institution, corporate entity or individual that offers secured or unsecured business loans would qualify as private lenders. The proposition would be private business lending.

 

SIGNIFICANCE OF PRIVATE BUSINESS LENDING

Private business lending is relevant and hence significant for two major reasons. One, it provides financial aid to businesses that are in need of money. Two, it provides people and organizations an opportunity to invest their wealth and reap financial rewards in the process. Banks do not entertain all types of businesses and are rather stringent with granting loans, especially to startups or companies that do not have an evidently profitable enterprise. Naturally, most small to medium businesses, including startups and those that have been around for a while but are unable to prove their financial sustainability, do not get loans from banks. Private lenders are thus necessary given the demand of secured and unsecured business loans among companies that get turned down by banks. Then there are businesses with bad credit or relatively uncertain revenues that can only seek financial assistance from private lenders.

 

DIFFERENT TYPES OF PRIVATE BUSINESS LENDING

Broadly, there are two types of private business lending. This is similar to how it is with banks. There are secured and unsecured business loans. Secured business loans, much like secured lending in the banking sector, requires the borrower or applicant to provide some kind of collateral or guarantor to qualify for the loan. This could be the infrastructure of an organization, any valuable asset a business may own, intellectual property or something that would be deemed worthwhile by private lenders. Unsecured business loans do not require any such collateral or guarantor.

 

Since startups and small to medium businesses do not have much infrastructure and they may not have any valuable asset of any kind, unsecured business loans are more common in private business lending. Also, unsecured business loans are often available to companies that have bad credit. There are many kinds of private business lending in both secured and unsecured categories. Here is a brief overview of the common ones.

 

• Term Loans

 

A loan that has a fixed repayment term by the end of which a borrower repays the entire loan amount along with the accrued interest is called a term loan. Term loans are among the most traditional of private business lending.

 

• Short Term Loans

 

These are similar to term loans with the only difference being the repayment period. The term of repayment is usually much shorter than a typical term loan. Wherein term loans can be repaid in five years or ten years, short term loans usually have to be repaid in a few months. Most short term loans have a repayment period shorter than two years.

 

• Small Business Administration Loans

 

SBA or Small Business Administration has different types of loans. They offer secured and unsecured business loans to small and medium enterprises. Most of their loans are targeted at specific types of business in shortlisted industries. Since Small Business Administration is a government agency, its loans cannot be technically considered as private business lending. However, the agency does operate through banks and other private lenders in some cases. Hence, you could get private business lending in accordance with the regulations of the agency.

 

• Business Lines of Credit

 

Line of credit is a financial proposition wherein private lenders determine how much money borrowers can withdraw or use at a given point in time. Once the credit is maxed, no more money is available till the borrowed, withdrawn or used fund is repaid. This is similar to a line of credit that employers provide to their employees and what banks offer to some of their clients. Business line of credit is suitable if you are looking for some financial assistance with your recurring expenses.

 

• Equipment Financing

 

Equipment financing is similar to car loans or even mortgage. Private lenders will finance the purchase of equipment or machinery. These are not unsecured business loans as the equipment or machinery purchased is used as the collateral or guarantor. It is possible for businesses to get 100% private business lending to purchase equipments. Such loans extend to buying assets such as land or property.

 

• Invoice Financing

 

Invoice financing is similar to business line of credit. Companies can provide their outstanding invoices and get cash from private lenders to meet expenses and the money needs to be repaid when the invoice is paid. Invoice financing is helpful for companies that provide credit to its clients or customers, if there is a postpaid grace period or if the payments are made in arrears as a prevailing practice in the industry.

 

• Merchant Cash Advances

 

This type of private business lending is only available to retailers or online stores that use merchants or payment gateways. The merchant gateways would provide cash as credit against the transactions that would happen through their platform or point of sale units. Such private business lending is available for all types of stores that have point of sale units or online payment gateways, even if the company has very bad credit. These cash advances can be applied online and there is no need for any physical correspondence.

 

• Business Credit Cards

 

Business credit cards are not private business lending but they serve the same purpose as unsecured business loans. They are similar to a line of credit. Business credit cards function in the same way as personal credit cards. Most credit cards for business have rewarding loyalty programs. The limit may not be substantial for businesses with bad credit but fair usage and timely repayment can increase that exponentially. As with personal credit cards, everything about business credit cards can be done online.

 

PROS AND CONS OF PRIVATE BUSINESS LENDING

• The biggest advantage of private business lending is the sheer availability of financial assistance for small to medium businesses and even reasonably large enterprises with bad credit. Many businesses will not meet the criteria preset by banks. The second advantage of private business lending is the availability of unsecured business loans. Not all companies have substantial or valuable assets to use as security. The third advantage is the number of private lenders operating today. It is likely you would find at least a few private lenders in your city or town. You can access the whole spectrum of private lenders online. Geographical limitations don’t apply to private business lending. The fourth advantage of private business lending is the ease with which borrowers can get fast cash. There are private lenders that would approve unsecured business loans in less than a day.

 

• The most significant disadvantage and perhaps the only one about private business lending is the rate of interest. All private lenders are effectively taking a risk by backing a business that has bad credit, does not own any valuable property to use as security or collateral and the enterprise may or may not have an impeccable track record of profitability. The company may eventually fail to repay. Naturally, most private lenders charge much more interest than banks. Small Business Administration loans may have reasonable interest rates but private lenders usually levy high interests. There are private lenders that have unreasonable charges and resort to fraudulent practices. Private business lending is not without its share of bad apples. There is also limited regulation pertaining to private business lending, unlike banking where one could say there is excessive legislation and control.

 

Other than the rate of interest, there is no apparent disadvantage of private business lending. If a business owner or entrepreneur can repay the loan with the accrued interest while running their enterprise as they should, then there is nothing more helpful than unsecured business loans from private lenders.

 

HOW TO FIND THE BEST UNSECURED BUSINESS LOANS FROM PRIVATE LENDERS

Before you embark on your quest to find the best unsecured business loans from private lenders, you should revisit the various types of propositions available at your disposal and you should shortlist a few that are suited for your present circumstance. The nature of your purpose, which warrants the loan, will determine the type of private business lending you should opt for. You must look for private lenders accordingly. While private business lending is a distinct financial sector, completely separated from bank, it is an industry in itself and there are many types of private lenders.

You should begin your quest for private business lending online. This will allow you to explore many more options than what your city, town or surrounding areas would offer. Always zero in on the type of loan that private lenders specialize in. Most private lenders will have some preferences and they would be willing to offer you unsecured business loans for purposes that they find viable. You need to make a list of the private lenders that are relevant for your purpose and apply for unsecured business loans. Compare the quotes, rates of interest and terms of repayment when you receive their propositions online. It is possible some private lenders will not entertain your application but many will. Private business lending is not as stringent a practice, unlike how banks operate.

A List of Private Lenders in the United States

BlueVine	CAN Capital	Credit Junction	Direct Capital
ForwardLine	Fundation	Fundbox	Funding Circle
Headway Capital	InterNex Capital, LLC	Kabbage	Lending Club
OnDeck Capital	QuarterSpot	RapidAdvance	SmartBiz
StreetShares	Swift Capital	The Business Backer

Apply, Compare, Negotiate and Decide

 

As you get more familiar with private business lending while you learn about these private lenders, understand the terms and rates of interest applicable for unsecured business loans, how the online applications and approvals work, what is defined as bad credit and how other criteria determine your chances, you would be able to decide if certain propositions are right for you or you should keep looking.

 

For instance, BlueVine focuses on short term line of credit and invoice financing. It is only interested in small businesses. It uses FICO score as a criterion but it does entertain applications from businesses with reasonably acceptable bad credit.  CAN Capital specializes in term loans. Credit Junction offers line of credit. It has a well laid out repayment structure. Direct Capital prioritizes its short term unsecured business loans by fixing daily payments. ForwardLine and Fundation are into term loans. They are more likely to offer short term loans but the rates of interest are quite reasonable for private business lending.

 

Fundbox deals in invoice financing, Funding Circle offers term loans with fixed monthly installments for repayments, Headway Capital and Kabbage deal in line of credit and InterNex Capital offers secured line of credit. Lending Club has fixed rates of interest for its term loans. They do not charge any penalty if you repay early or before the term ends. Their unsecured business loans are amortized. OnDeck Capital and QuarterSpot offer short term loans. OnDeck also offers line of credit and has relatively low rates of interest. RapidAdvance offers short term loans. It has three types categorized as Preferred, Select & Standard Loans. SmartBiz specializes in SBA loans. StreetShares deals in term loan, contract financing and line of credit. Swift Capital offers unsecured business loans that are designed like merchant cash advance. Business Backer deals in line of credit.

 

The loan amount your business would qualify for, the exact rate of interest and the specific terms of private business lending including the repayment period will depend on various factors. The nature of your business, the purpose you need the fund for, the financial state of your company and its projected revenue or growth, the accounts receivables and your individual profile as the owner or entrepreneur are some of the quintessential factors, all of which can be the decisive criteria.