An understanding of private funding may help you as an investor to make the right business-informed decisions. It is a kind of lending provided by a private investor, a company, or a group of investors. Private lenders come in as a solution to the various creditworthy deals that fail to meet the bank lending criteria. These deals are still solid and worthy considering even when they do not fall within the bank lending vetting parameters.
Private lending usually provides funds for a short term lending period and specific situations that will not qualify for or meet bank lending criteria. It is mainly meant for companies who are looking for funds for various reasons. It could be a situation where the business wants to increase stock and needs funding to buy the needed stock. It could also be a case where a business wants to invest in business premises and would like additional funds to meet the cost of the building or the cost of renovating the premises. All these and many others are various reasons why businesses would like to borrow short-term loans.
Criteria for Private Funding
Private lenders will approve loans to the borrowers who fall under these six categories:
- The borrower should be a business but not an individual. Funding to an individual can only be on the basis that they are spending the money on their existing business or investing in a new business.
- Lending is only for a short while that does not exceed 24 months.
- The lenders must be sure that the borrower can pay the loan and that the loan is backed by a real estate property. It can either be business premises that the business occupies, a commercial, industrial or residential property, or a piece of land.
- The borrower must show evidence of income to enable the regular repayments together with the proposed interest.
- The borrower must show the repayment plan through refinancing, property sale, or any other cash injections.
- Lenders can also give home loan finance to property buyers as long as they show the ability to repay the loan.
Why is Private Funding Becoming Very Popular These Days?
There are several good reasons why borrowers will want to opt for private borrowing. These are five of the top reasons why private funding is gaining popularity.
1. Accessible Decision Makers
Banks are large organizations, and in most cases, it is not easy to access the decision-makers. You will only get the outcome of your loan sometime after you deliver your request. You may not get time to discuss one-on-one with the decision-makers, and all you get is a report of either approval or decline. On the other hand, non-bank lenders are a smaller group and sometimes individuals. That gives you an opportunity as a borrower to deal directly with the person deciding on your application.
2. Simplified Paperwork
Private lending uses simplified paperwork and few documents to handle. For that reason, it becomes more attractive to the borrower than traditional borrowing, where there is so much paperwork.
3. Streamlined Due Diligence
Non-bank lenders only have their interest in the ability to pay. They, therefore, focus on the property that is being financed and the plan to repay the loan. That means they only concentrate on the security and the exit strategy. They will not bother with the credit score or any other aspect outside the property and the repayment.
The major motivation of the borrowers is the speed at which the loans are approved. The traditional lenders may take a very long duration before they approve the loan. They also need another long process before the funds are released to the borrower. On the other hand, investors want quick money to purchase a competitive property and private lenders provide that.
The traditional lenders, that is, banks, have a list of requirements for the loans they provide to the borrowers. Private funding allows you the flexibility of customizing your loans as per your requirements. That gives you the option of negotiating for things like early repayment, even if it is with a penalty. You can agree on terms with individual lenders as they will operate on their specified terms and conditions.
The most important thing is to make sure you are dealing with the right private lender. While there are several private lenders online, it will be best to connect with the right lender through the most trusted website. The ADS.finance platform will connect you to hundreds of private lenders to meet your individual borrowing needs.