Table of Contents:
- What are private business loans?
- What types of private business loans are there?
- Why get a private business loan?
- How to get a private business loan
- Frequently asked questions
What are private business loans?
Private business loans don’t refer to a specific type of business loan.
Rather, it refers to any alternative business loan (i.e. a business loan offered by a lending institution other than a traditional bank) offered by a private lender.
Hence, the private in private business loans.
Private funding can include several different lending types, including:
- Crowdfunding and peer-to-peer funding
- Microfinancing
- And most of all, alternative business loans
Private business loans specifically offer one unique advantage of traditional bank financing: an alternative source of business funding.
And that funding is often easier to obtain or offers alternative qualification requirements, that combined allow you to potentially obtain funding for your business when otherwise you wouldn’t.
What types of private business loans are there?
Private business loans encompass a whole suite of lending products.
Some are short-term, some medium, some long. Some offer a one-time lump sum, others a more continuous flow of capital based on your needs.
And still others are designed specifically for certain types of businesses, including those which invoice their customers.
The more you know about each loan type, the better you’ll be able to identify a funding vehicle that’s the best fit for accomplishing your business goals.
Here are the main types of private business loans:
Term loans
Term loans are primarily separated into 2 different loan types: short-term and medium-term.
Term loans is a blanket term which refers to virtually every type of private business loan, including:
- Unsecured business loans
- Business lines of credit
- Merchant cash advances
- Invoice factoring
- Asset-based loans
Learn more about short and medium-term business loans.
Business lines of credit
A business line of credit is a unique lending vehicle that gives you access to a pool of credit that you can tap into whenever you need it.
When you’re approved for a business line of credit, you’re given a credit limit. All you have to do is make sure that you pay off your balance regularly and you’ll be able to continuously tap into it over time.
This makes a business line of credit especially great for seasonal businesses.
Learn more about business lines of credit.
Financing
Financing is an umbrella that includes two main types of funding products: equipment financing and invoice financing:
Equipment financing
Equipment financing gives you the ability to get the funding you need to finance a vital piece of equipment when you don’t have the cash to get it on hand.
You’re able to fund the full cost of that piece of equipment with the equipment itself working as collateral as you pay it off at interest.
Learn more about equipment financing.
Invoice factoring
Invoice financing works similar to equipment financing in that you use one or more (often many) of your business’s invoices as collateral (instead of a piece of equipment) to obtain financing which you then pay off at a specified interest rate.
Invoice financing is useful as a way to bridge the gap when you have open invoices in your accounts receivable and need to maintain a steadier cash flow, something many businesses suffer from.
Learn more about invoice factoring.
Merchant cash advance
A merchant cash advance is a unique type of business financing in that it uses your daily credit card sales as a form of soft collateral that also determines your loan amount.
You get an amount based on your regular credit and debit card sales which you then pay off with interest by setting up an ACH auto debit straight from your credit card processor each time you batch out.
MCA’s are flexible in that because you’re paying the loan off at a percent of your credit card sales; when your sales dip so does your loan repayment amount go down.
Learn more about merchant cash advances.
Hard money lending
Hard money lending is a type of asset-based lending, a type of financing secured by a tangible asset such as a car, property, or liquid asset such as cash savings.
Hard money lending specifically works as a short-term “bridge loan”, named so because it’s designed to help businesses bridge the gap on large projects where the project must be completed before getting paid.
Peer-to-peer lending
Peer-to-peer lending (also referred to as P2P), is a form of crowdfunding which has become increasingly popular over the past few years.
With P2P, a group of people come together, typically on a P2P lending platform that facilitates the transaction, and offers a pool of funds to a borrower at interest.
Learn more about peer-to-peer lending.
Pros and cons of private business loans
Private business loans tend to work a bit differently than traditional bank loans.
That’s mostly a good thing. However, there are not only pros but also cons to this as well.
Before deciding how you’ll be funding your business capital needs, you should know what those pros and cons are to help you make an informed decision.
Pros of private business loans
The major overarching pros of private small business loans are:
- Easier approval: Private lenders take into consideration the complete picture of your business’ health, not just your credit score. Because of this, you can often be approved for a loan or advance with bad or fair credit.
- Faster funding: Private lenders typically pride themselves on their speed as they don’t have to move through the same hoops that clog the bank loan approval process. Most alternative lending options fund in 24-48 hours.
- More options: Private lenders have a variety of funding options even beyond that which traditional banking institutions typically offer. For example, if you need funds but don’t have the money now to start paying off a loan but do have outstanding invoices, invoice factoring could offer you the chance at getting the funding you need when a traditional bank funding application might leave you without anything to show.
Within these points are many positive subpoints such as no hard collateral requirements, little or no credit requirement in many cases, and more convenient terms.
However, each lender is different. Make sure to take time to look at your options and go with the product, lender, and terms that make the most sense for your business and its goals.
Cons of private business loans
When it comes down to it, there really is just one primary con of private business loans: higher rates.
Not all private business loans have higher rates, but most do. That’s for one primary reason: most have different qualification requirements.
As we touched on a moment ago, private business loans have more flexible terms and qualification requirements. In particular, that means two things:
- You don’t need great or even good credit to get a private loan.
- Most business loans through private lenders don’t require hard collateral like bank loans do such as property, a vehicle, or cash savings.
Those are big positives. However, the flip side of that is many private loan products have higher APRs and shorter loan terms to make up for that increase in risk the lender takes on as a result.
It’s important to make sure and review any loan contract before signing to make sure that the numbers make sense for you and your business.
It’s easy for a high APR to become overwhelming. But many private lenders offer fair and competitive APRs, so do your homework before taking that final step.
Get the funds you need without the headache– and fast– with Excel Capital
At Excel Capital, we know how much work it takes to run a business.
You have enough to deal with, you don’t want to stack the often painful process of applying for a loan that is often the bank application process on top of that.
Plus, what if you don’t have the credit?
You work hard each day to grow your business, and sometimes, just to keep it afloat.
Times change, sometimes there’s growth, other times you’re fighting to survive.
In both cases, a little extra capital may be exactly what you need to keep things moving forward.
That’s why we’re here to help.
We believe that the traditional process of jumping through hoops to be approved for a bank loan and needing stellar credit just to get approved is unrealistic for modern businesses.
That’s why we’ve designed a collection of flexible business financing options that offer everything you need, whether you’re looking for:
- A quick infusion of cash to pay the bills
- A seasonal boost to prepare for your busy time
- Or a large sum of capital in times of growth
Our application process is quick, simple, and easy.
Complete our online application and see how much you can be approved for:
Frequently Asked Questions
You can acquire a small business loan from several places, from a traditional bank to an alternative private lender or peer-to-peer lending institution.
In recent years, alternative private lenders have become popular as they’re not typically bogged down with the high credit requirements and slow application processes that are synonymous with applying for a business loan at a major bank.
Easy is relative when it comes to business funding options, but getting a loan from a traditional bank is generally much harder than with an alternative lender as credit requirements are stringent, typically requiring 680-720 or higher just for initial approval. Alternative lenders, on the other hand, offer business financing solutions on fair and even bad credit, provided your business is in good standing.
Nowadays, anyone can qualify for a small business loan, provided your business is in good standing. Traditional banking institutions require 680-720+ credit while SBA loans require 620+. However, alternative lenders offer financing solutions in the fair to bad credit range.
With Excel Capital, you can be approved for a loan up to $2,000,000, depending on various factors. Apply today to find out how much you can be approved for.
