Getting a Business Loan: Private Lenders Vs. Banks

[Jasmine]

The first thing you need for a business is money. Without it, you can't get started. There are different ways to get money for your business, and one option is getting a loan. But getting a loan isn't easy. You might be able to borrow from a lender, but their fees can be really high. Private lenders might charge 2 X or even 3X of the average interest rates charged by the banks. Banks usually have lower interest rates, but getting a loan from banks is harder. You'll have to deal with a lot of paperwork. Banks also do not offer business loan if you cannot show your income source.

 

[Mika]

While you are relieved form paper works when you are borrowing from private lenders, you will be paying a very high interest rates. You also need to provide some sort of collateral as a security. When they get collateral, they will always under value your asset, and when you fail to pay back they will immediately seize your assets. Some private lenders are also notorious for converting your payable interest to principal amount, thus making you pay higher amount. Business loans always need to be secured through banks.

 

[saoussen5765]

Private lenders are not regulated by the government and things can easily go south in a loan transaction and there would be no one to fall back to for redress. When you add that to their arbitrary interest rates, it remains the best option to get a loan from a government-regulated bank ahead of a private lender.

I also think your liability insurance case of a slight default is higher with a private lender than with a regulated commercial bank. How they handle defaults in loan repayment is dependent on the personality of the private lender whereas banks have streamlined fair measures to handle defaults in loan repayments.