Private Business Loans: Pros and Cons
What are Private Business Loans?
These are loans from non-bank entities. They may be loans from family and friends, venture capitalists, angel investors or other financial institutions.
Private Business Loans Pros:
There is usually minimal paperwork involved with private business loans.
One of the main benefits of getting private business loans is not having to provide any form of collateral. If you get a loan from family and friends for instance, they may not place too much importance on your provision of some form of assets.
Lenient interest terms
Unlike with banks, private business loan providers may provide lower interest rates.
No background or credit checks
While mainstream lenders will use these checks to determine how trustworthy you are, private business loan providers might not place too much importance on this factor.
With private business loans, you may have flexible repayment terms.
Smaller capital amounts
If you apply for a small business loan amount at a bank, chances are that your application will be rejected, largely because banks regard small loan amounts as costly. They would rather loan large amounts and earn interest over a longer period of time.
By applying for private business loans, you may be able to get access to capital in small amounts.
Knowledge and experience from angel investors
If you get a private business loan from an angel investor, you may be able to benefit from the wealth of experience they possess.
Private Business Loans Cons:
End of a relationship
If you don’t pay your family member or friend as agreed, there is a risk of a strained relationship.
Lack of formalities
Lines may be blurred due to the lack of formalities.
Loss of control
You may have to give up a certain degree of control of your business in exchange for the business loan.