Every business experiences hard times that can either make it or break it. Finding adequate funding that can help you overcome these financial difficulties can be a nightmare. All the paperwork that you need to fill out and the documentation that you need to submit can be overwhelming.
Sometimes your credit history can also block your way towards traditional types of loans and banks that offer them. In these cases, private business loans or start-up loans from private lenders can be just the thing that puts your business back on its feet.
What are private business loans?
Private business loans encompass all business loans that come from non-bank lenders and entities. These loans can come from online lending platforms, but they can also come from financial institutions, venture capitalists, and something known as “angel investors.”
The difference between the two is that angel investors tend to be individuals that finance up-and-coming and startup businesses. Venture capitalists, on the other hand, move as a group, and they tend to invest and finance older and more developed businesses. So compared to other conventional ways of financing, private business financing doesn’t carry some of the problems that traditional lending institutions do.
Borrowing from angel investors
The following are the advantages of borrowing money from angel investors:
1. They offer small amounts of money
Even though this might seem like a disadvantage, a small amount is usually what a business needs. Angel investors take this money out of their own personal funds, which means you have quick access to it.
2. They are very flexible
Even though they might not be as flexible as your relatives and friends, angel investors are far more flexible than traditional lending institutions like banks. Your background and credit history still matter, but they don’t have to be the red line for an angel investor as they usually are for banks and other lenders.
3. They are local and they can be found everywhere
You don’t have to seek out an angel investor. They are probably already on the ground, investing in other businesses in your community.
The Disadvantage
The downside of taking a private business loan from an angel investor is that they can get involved in running your company. Most angel investors won’t even give you the money if you don’t give up some of the control.
Borrowing from family
Here are the following benefits of borrowing from a close friend or family:
1. No paperwork
For example, it is safe to assume that your parents won’t make you sign a bunch of documents regarding the loan. Furthermore, you will gain quick access to the borrowed amount.
2. No collateral is needed
It is also safe to assume that your close family relative won’t require your house or your business as collateral if the loan doesn’t get the job done. So, you will get what is known as an unsecured loan.
3. Lower interest rates
A private business loan from a family member or close friend can also come without an interest rate, but even if it does – chances are that the rate will be very favorable.
4. No credit history documentation is required
Probably one of the biggest benefits of a private business loan from a family member is that you won’t have to justify your background and credit history. Chances are that the person borrowing the money already knows about your financial difficulties and still wants to help.
5. Flexibility
The terms of this type of loan are very negotiable and you can easily change them if need be. Also, you won’t have to panic if you miss out on a monthly payment. In all likelihood, your relative or your friend will forgive you and move on. However, this doesn’t mean that it should happen regularly because in that case, they won’t be so eager to help you in the future.
The Disadvantage
The most obvious drawback of borrowing money from a relative or friend is that in the end, you can ruin your relationship. What if that person says no? What if you aren’t able to pay back the money? In this case, not having a written agreement can turn into litigation which never ends well. It is no coincidence that there is a saying: never mix friendship and business.
Conclusion
Angel investors and borrowing from friends and family are two easy and fast options to get money. If you don’t think that these two are a good option for you, remember that there are still other types of financing out there.
