Last Updated: Aug 28, 2018When you're trying to get a loan to grow your business, is it better to borrow from a bank or a private lender? Here are some pros and cons of each to consider.,So, what is better, a business loan from your bank or a business loan from a private lender?,The answer is simply the one loan that you can get approved for.,But, every business owner wants a bank loan.
In fact, many business owners think that their bank is the only place they can get a business loan. But, that is far from the truth.,Everyone wants a bank loan. Why?
It is usually because bank interest rates can be lower.,Why do bank loans offer lower rates?,Either of which raises private lender’s cost of funds which in turns gets passed on in their loan rates.,A bank needs to earn a spread on their loans of say 6% to cover the bank’s direct expenses and overhead costs (their cost of being in business).,Thus, it is easy to see why everyone wants a bank loan as opposed to a private lender loans.,Plus, banks add a lot of other costs to their loans – including fees, reporting requirements, covenants, etc. that are not included in their rates but make the overall cost of their loans higher.,Private lenders, alternatively, don’t have all those restrictions or alternative ways to generate revenue (beside fees which only happen when they close a loan). In fact, they are usually in business only to make loans.,Kind of a double edged sword.usa payday loans milwaukee
Cheap money but hard to get on one hand and easy to get loans but higher rates on the other.,However, going back to the original questions, which is better?
The answer still remains the loan that you can actually get, but it only remains true while you can’t get the other.,If you don’t qualify for a bank loan, make it your goal to grow your business to the point that you qualify for bank funding (you might not actually need it when you can qualify for it). But, in the mean time, if all you can get approved for is a private lender loan, then by all means, knowing that it is only temporary as your business grows.,Example: If you have an opportunity to earn $10,000 above the principal of the loan but can’t get a bank loan – do you just let the opportunity die or do you take the private loan and only realize say $9,000 in profits due to the higher interest rate?,So, when seeking a business loan, which is better a bank loan or a private lender loan?
It really all depends on what you can get approved for, be able to repay, and profit from.,*Business Know-How may receive a commission if you apply for a loan with OnDeck Capital.
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