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Private Lender Business Loans: The Pros and Cons

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Banks aren’t the only people out there willing to give loans to small businesses. Many private lenders have sprung up in recent years to take advantage of the huge market in providing funds for businesses that will be paid back over time. They make their money through miscellaneous fees, but most importantly, through their interest rates. Also, they help businesses that banks are usually wary of dealing with, making them even more attractive to would-be debtors. Many people are woefully uneducated on what opportunities are beyond the doors of their local private lender.

But then, inevitably, there must be more going on underneath the hood of all of this, right? You’d be correct by that assumption. Let’s take a look at the benefits and drawbacks of private lender loans:

Pro: Quick approval time

Often, a private lender will process your application for a loan much faster than a bank, sometimes by several days or even several weeks in rare cases. This is because lending money is their sole operation. Banks, on the other hand, have a lot of moving parts and other aspects to consider before they can accept your loan.

Con: Short-term lengths

Unlike banks that have been around for decades, most private lenders aren’t particularly old in relative terms. Since they haven’t been around that long and need an influx of serious enough cash monthly to stay afloat, they very often don’t offer term lengths as long as a bank might.

Pro: Lower credit needed

Private lenders are a favored choice of those with a short credit history, or even a poor credit history as their barriers for entry are much lower. These types of lenders are willing to take more risk in exchange for more profit, with each loan being a potential opportunity to gain instead of a potential opportunity to lose compared to a bank. Many private lenders such as Deal Struck give much fanfare to the fact that they help secure loans for businesses that banks are less willing to work with.

Con: High interest rates

Because of the business nature of being a private lender and their lower credit requirements, the interest rates on loans by this type of creditor are typically much higher, sometimes even double of what a bank offers. There’s a trend among private lenders that have been around for a while to begin offering more favorable interest rates, but by and large, a private lender will almost always have a higher interest rate than a bank.

Conclusion

Just because the bank can’t get you what you need doesn’t mean you’re up to a certain creek without a paddle. Private lenders play a crucial part in the financial system by helping to accommodate those with low-to-no credit, as well as specialized loans depending on that particular creditor’s clientele. In fact, some private lenders offer loans that banks don’t. For instance, it’s to purchase a niche type of equipment, or make an expansion in a new industry that banks aren’t familiar with yet. While there’s a premium for their service, it’s difficult to argue that it isn’t justified.

Photo credit: Pexels.

Here are a couple more great articles if you’re interested in the topic of small business: thoughts on raising the minimum wage and how self employed people can get health insurance.


Some Good News

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Editorial Note: This was supposed to be posted August 8th but as I mentioned yesterday, a couple of my posts got lost! I will have a real-time update for you tomorrow. 

My dog (and savings) are mostly okay

The vet examined Rosie on Wednesday and it was good news. He removed the questionable lump while she was awake (saving me money on anesthesia!). He took a look at it under a microscope and said it was just a cyst that had become infected. Good news! He inspected her other lumps and said they were fine as well. This was one of our most expensive visits to date, totaling $236. The vet prescribed three medications to address her whole-body rash and the wound from the lump removal. You can see in this picture below, there is a wound on her back. She’s bandaged up now and doing great.

Rosie vet

I am so relieved, especially about the corn cobs she ate. Those are one of the most common causes of bowel obstruction surgery. Rosie had corn cobs stuck in her belly for three and a half days, and we are beyond lucky that they came up naturally (there was one full-sized cob and two half-sized ones – that’s a lot of food to have stuck inside you for so long!).

Budget implications

Rosie has insurance, but since I purchased it, she hasn’t been sick. Typical, right? She has a $300/year deductible so I won’t get any money back from this visit, but I submitted it so that if she is sick again, we will receive coverage. I haven’t figured out if I can pull the money for this vet visit from other categories yet. I shouldn’t need any clothes, cat medical supplies, or household stuff this month, but I’ve already blown my entertainment budget and it’s only August 9th. If I can be lean with my groceries and find a bit of money from side hustles, I might be able to swing this payment without touching my savings or adding to my debt.

Spending Challenges

I have been tracking my spending. Why is this so difficult? Facing spending realities is really hard. I am over budget for entertainment, and already almost at my limit for groceries. I used to be a perfectionist with meal planning, but work is ruining all of that right now. I’m putting in 13-14 hour days plus commuting, and I have a house to clean and animals to take care of when I get home. I haven’t watched TV or listened to podcasts in weeks. I have no free time, and my budget is suffering for it. This is my reality for at least another few weeks, so I am going to keep tracking spending diligently. Hope has been posting money challenges. If I am being realistic, my biggest challenge this month will be not to add to my debt. Having my honest spending data in front of me will help inform my next goals. I’ve only been tracking nine days so far, and it’s already staggering.

Side hustles?

This morning I received a message for a dog-sitting gig that would pay $132. The owner is looking for someone to sleep at her house for a few days mid-month. I actually have help with my pets this month, so I can swing this gig! Fingers crossed it works out. I also have a lead on a friend of a friend who needs a room for a few weeks starting August 15th! I know this person, so it won’t be a stranger in my house.


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