How to Get Private Business Loans

Private business loans are a great way to finance a growing company. Seeing as the lending market for commercial loans ebbs and flows with the state of the economy, more business owners want to know how to get private business loans to lock in financing in good times and bad. We’ll show you how to get a private business loan, and why a loan approval may be the best thing to ever happen to your business.

Private Loans
First things first, private business loans are not private because they’re hidden from the public, nor are they private because they’re dealt to a private company. Private loans are those which are given to companies from individuals, not banks or financing companies. In many cases, a private lender is more likely to be the neighbor next door than a well-dressed banker armed with an amortization table.

Private loans are booming for two reasons; first, investors want higher returns on their investment capital and secondly business owners want to be able to work with financiers who can guarantee that capital will be available.

Investors have had to deal with record low interest rates for more than a decade, a condition which is leaving many investors with slow growth in their investment portfolios. In making private loans, an individual can receive an honest interest rate, and have a direct stake in a business. Also, unlike the fast moving financial markets, the private loan market is unlikely to leave a lender to sleepless nights or volatile movements. Non-correlated to the stock or bond markets at large, a private loan is a great deal for lender and borrower alike.

Borrowers, on the other hand, appreciate the fact that private loans often bring terms that cannot be found in traditional lending. Bank loans, for example, are often callable, meaning that the bank can demand that a company deliver enough cash to pay off the loan at any time. Additionally, bank loans often come with variable rates, which leave the business owner concerned that a sudden rate increase may reduce their available cash flow.

Organizing a Private Loan
The best private loans come from people you know, either through business, or from personal connections to friends and family. Besides friends and family, however, there are a few other opportunities to raise cash for your business privately:

Bizbuysell – An online website where business owners buy and sell established businesses, bizbuysell also offers business owners the opportunity to network with lenders who make private loans to businesses with sustainable business models.

P2P lending – Peer to peer loans from Prosper, Lending Club, or other P2P lenders allow businesses to raise funds from private investors. Generally low interest, a P2P loan is taken out in the owner’s name, and secured by the finances of the individual, not the business. However, P2P loans offer flexible payment terms, reasonable interest rates, and very good approval chances. Additionally, P2P lenders are known to fill up most loans to a point at which the interest rate gets bid down by lenders, reducing the total costs. Easy to set up, and virtually risk-free in terms of getting denied, a P2P loan is a great way to get a business off the ground with private financing.

Hedge funds – Hedge funds and less traditional investment programs are now lending to small and growing businesses in record amounts. As banks step away from the lending cycle, hedge funds are an important part of financing, offering businesses both short- and long-term financing with interest rates that are slightly above market. However, hedge funds are willing to take a risk, and that means a local hedge fund in your community may very well lend your business more money than a bank, and approval is more likely to be had in less time. Additionally, fewer regulations, and the ability to borrow in the business’ name give hedge funds a leg up in the race for who will be your next lender.