INTERHOLD LIMITED is committed to communicating openly and honestly to our clients throughout the funding process, while we educate and empower our clients so that they can make informed financing decisions for their company. We believe in providing our clients with complete transparency throughout the funding process, and we take pride in steering our clients towards the healthiest and most responsible commercial financing solutions.
What is a Private Business Loan?
A private business loan is any type of business financing provided by a non-bank business lender. Unlike with an equity investor like angel investors and venture capital, a private business loan doesn’t require giving away a portion of your company’s equity in order to obtain financing. Private business loans are almost always structured as a type of debt financing, that are structured as loans, lines of credit, factoring and sales of future business receivables.
What is the Purpose of Private Business Lending?
Private business lending is meant to fill the gap left by traditional and conventional bank lending institutions. Oftentimes, conventional lenders have very strict lending criteria with little to no flexibility in their underwriting and structure of the business loan facility. Private lenders on the other hand aren’t constrained by many of the regulations and restrictions that Government-insured lending institutions have. With these looser regulations and fewer restrictions, private lenders are able to offer different businesses with creative types of business financing that can work for nearly any business that can prove their ability to repay the loan, and doesn’t pose too much risk to the lender or funding company.
Benefits of Private Business Loans:
The benefits of getting a private business loan are many, but the most important benefit is usually just simply having access to capital. Banks only provide a 20-40% approval rate for most business applicants. Private business lenders on the other hand can have approval rates as high as 90% depending upon the company’s situation and financial health. Beyond access to capital there is also the ease of obtaining funds, reduced documentation requirements, more flexibility about use-of-funds, little to no covenants, and speed of funding, and all around creativity of private lenders that think ‘outside-the-bank’.
Additionally, getting a bank loan without guarantee is nearly impossible. If your credit score is not very high your chances of getting conventional or Program financing can be very slim – and that’s before other financial factors are even considered by the bank. Nearly every alternative business lender is a private lender of some sort, and the private lender’s can accept credit as long as the company can prove they will repay the loan and offer sufficient collateral to mitigate the lender or private funding company’s risk.
Downside of Private Business Lending
The downside of private business funding is generally the fact you will pay higher interest rates than you would with conventional financing. Keep in mind, when your business is being evaluated for a loan, the funding company will figure out how much risk is involved, and then price-in the risk into the loans rates. The more risk your business poses in not repaying the loan, the higher the rate the lender will charge. Since banks take little to no risk, they are able to offer the lowest rates available to businesses seeking capital. On the flip side, since you were unable to get financed through traditional means the bank felt you posed too much of a risk for their lending model. Therefore, in order for the private lender to step-in, you must understand that your firm poses a higher risk, and thus: you’ll pay a higher rate.
Collateralized vs Unsecured Private Business Lending
Uses for private business financing cover just about any expense or investment a business may have. While conventional lenders may have restrictions on how their term loans and lines of credit are used, many private lenders will allow the use of funds to be used on just about any business expense one can think of. Some of these uses include:
- Private working capital lenders
- Private commercial real estate lenders
- Private cash advance consolidation lenders
- Private term lenders
- Private line of credit lenders
- Factoring companies
- Equipment financing