Why More Businesses Are Choosing Private Lenders Instead of Banks
For the longest time, banks were seen as the only option if a business wanted to secure a loan or line of credit to help them conduct their activities. After all, they’re the people who have all the money locked away in their vaults and stored in their servers. That’s not the case anymore. Private lenders have sprung up left and right to service holes in the current banking system that leave some potential customers stuck in the rain. Still, though, many people associate private lenders with shady payday loan establishments found in a city’s downtown core instead of legitimate financial establishments.
Here’s why that’s shifting:
Private lender interest rates are going down.
In previous years, most private lenders offered higher than average interest rates because of the increased risk profile of their clientele and the fact that they are a business with rent and employees to pay. As time has marched on, these lenders have learned much of the business and can operate with less risk and less overhead. Some private lenders exist solely digitally, eliminating the need for a large workforce and offices nationwide. Deal Struck is an example of just such a lender. This means better interest rates while still enjoying all of the benefits of a private lender.
Unique Term or Loan Agreements
Private lenders often deal solely in the realm of lending money, offering few other services, if any. This has allowed them to sit themselves down and look at new and novel ways of offering loans to businesses that end up being a much better fit than a traditional loan. Just about any kind of payment plan is on the table, so a business could structure their payments to better suit their cyclical profit margins over a year, or even ask for some extra flexibility during times of duress.
Quick Approval Process
Securing a loan from a bank for business purposes can take two to three months to process fully. This is because the bank has to carefully assess your credit and overall risk profile, and then fine-tune what terms they want to offer you. Each step is often checked and double-checked by other individuals, further adding to the processing time. Private lenders, on the other hand, can be quite speedy, taking anywhere from a single day to two weeks to process your loan. This is in part because of their higher interest rates that reduce their risk profile, but also because they see loans as a potential for profit and a new customer, as opposed to a potential loss if someone defaults on their loan. Private lenders greatly serve people who urgently need an excess of cash to make a time-sensitive purpose.
Banks have their drawbacks when it comes to securing a business loan. The need for good credit and the slow processing time is what most businesses often complain the most about when it comes to dealing with bankers. Private lenders are willing to work with businesses with a less established credit score (sometimes even a poor credit score) expediently, so any delay in potential business growth is kept to a minimum. As interest rates go down and private lenders become more like banks with regards to stability, this trend of people choosing to go to private creditors isn’t going to turn around any time soon.
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