Given the weak cash flow position during the COVID situation due to steady sales velocity and anemic financial opportunities, companies must restructure their financial strategies. Mechanisms, like availability of loans, a revival of monetary arrangements, rescheduling of cash flow, an extension of loan tenor etc., can safeguard the companies from the problems created during this phase. When it comes to taking business loans, entrepreneurs might find numerous sources, including banks and private lenders. The fundamental gap between the two determines the respective advantages and disadvantages to borrowers. Also, depending upon the speed, flexibility and the comparative risk involved, the borrower chooses the lender.
Many banks and state-backed financial agencies offer loans as initial seed money. Still, they are hesitant to lend most borrowers’ categories if they don’t qualify as per their terms and procedures. Moreover, when business units that have pledged all their assets for other loans and have none left to commit, these agencies fear that the loan will not be repaid. In this situation, business units turn towards private credit agencies that can offer easier business loans if the former qualify on specific simple grounds.
In the marketplace, private lending is when individuals or companies lend capital to businesses, individuals, or other investors. The concept of accessing funds is relatively simple with them. The interest rate would be higher but they have comparatively easier terms, and less paperwork. When entrepreneurs don’t qualify for traditional loans, they can go ahead with a private lender to meet their credit needs.
Types of loans
Business owners can avail several types of private loan options like merchant cash advance, line of credit, term advance, peer to peer loan, investor loan, working capital loan, etc. Among multiple financing options available, loans are categorized as secured and unsecured loans; and based on term period, short term or long term loans.
Secured loans are backed by some valuable assets like property, vehicle, equipment, or inventory. A private line of credit and working capital loan requires collateralizing them with the company’s assets. But, unsecured loans do not require the backing of any collateral (assets as security). However, their terms are more restricted than secured loans. A secured loan usually is easier to get and will tend to have lower interest rates than an unsecured loan.
Depending on the repayment period, loans can be short-term or long-term. Private lenders usually offer these tailor-made loans to match the various financial needs of the borrowers.
No matter what type it may, finance is the backbone of any company. A company essentially needs to find ways to control the credit lending situation and connect with the best resources and credit solutions, especially during the prevailing pandemic scenario.
How to qualify for a private business loan
A personal business loan is usually easier to qualify for than a traditional business loan with much-relaxed qualification standards, easy and flexible payback options. Private lenders tend to make loan decisions based on the company’s potential, not its history. The business plan must be solid and viable to get financing. With private B2B lenders, even if the company’s financial track record is badly affected by the pandemic times, entrepreneurs can still find a big list of low-cost loans offered by private lending companies for a particular period.
To qualify for the desirable loan, what a business need is:
- A solid business plan
- A good credit score
- A formal contract for favorable repayment terms of the loan
Though not always but the few alternative lenders also look into the company’s annual revenues, time-in-business, previous bankruptcies, etc. to determine a business’s eligibility for a suitable loan. They outline the loan’s repayment terms and conditions in a formal contract between the lender and the borrower. However, these terms may differ depending on various factors.
Getting a little extra money could come in handy, mainly when many businesses crawl out of the COVID crisis. Either small or big, many companies would use borrowed money to fuel their growth and fund various initiatives. They simply need to bring their qualifications on the table, determine the type of financing they need, demonstrate their business acumen, and pick the right lender who can offer them the desirable loan