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Are Private Lender Business Loans The Right Choice For Your Small Business?

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Small businesses are often confronted with the daunting task of securing funding. Whether it’s for start-up costs, expansion, or bridging a gap during tough times, financing is the fuel that keeps a business running. 

However, with stringent lending criteria from traditional banks, many small business owners are turning towards alternative financing solutions. One such option is private lender business loans

This comprehensive guide will explore what private lending entails, its benefits, the variety of loans available, the qualifying criteria, and how to apply for a loan.

What is a Private Lender?

A private lender is a non-institutional (non-bank) individual or company that lends money. 

Private lenders are a cornerstone of the small business financing landscape, offering loans without the same regulatory constraints banks have, which can mean less stringent qualification criteria and faster funding times.

Benefits of a Private Lender Business Loan

Private lenders can offer a lifeline to small businesses for several reasons:

  • Speed: Decisions and funding can be much quicker than with traditional banks.
  • Flexibility: Loans can be tailored to the specific needs of the business.
  • Accessibility: Often more willing to work with businesses that have less-than-perfect credit or haven’t been able to secure traditional funding.
  • Innovation: Fintech companies are at the forefront, offering creative financing solutions.

Types of Loans from Private Lenders

Private lenders offer various types of loans, each designed to meet different financial needs. Here’s a closer look at each one:

Merchant Cash Advances

A merchant cash advance is not a loan per se but rather an advance based upon the future revenues or credit card sales of a business. It is often ideal for companies that have significant credit card sales and need fast access to capital.

Lines of Credit

Lines of credit from a private lender operate similarly to a credit card. Businesses can draw on this credit as needed, making it a flexible solution for ongoing expenses.

Accounts Receivable Financing

Similar to invoice factoring, accounts receivable financing involves using your receivables as collateral to get an advance on the amount due.

Real Estate Financing

This type of financing is tailored to the needs of businesses looking to purchase or develop real estate and usually involves property as collateral.

Business Credit Cards

Business credit cards are a form of private lending and offer the advantage of building business credit, earning rewards, and managing employee expenses.

Personal Loans for Businesses

Sometimes, business owners might take out personal loans to fund their business. While these don’t require the business to qualify, they do put the owner’s personal credit at risk.

Invoice Factoring

Invoice factoring involves selling your invoices at a discount to a factoring company. It’s an excellent strategy for companies requiring prompt access to funds without waiting for the traditional payment cycles of months or even years.

How Invoice Factoring Functions

Instead of relying on the uncertainty of client payments, businesses can get an advance of 70% to 90% of the invoice value from factoring companies. The remainder is received once the client settles the invoice, minus a fee for the service—typically ranging from 1% to 4% of the invoice’s value.

The Necessity for Immediate Cash Flow

Slow payments can severely impact a business’s ability to meet operational expenses. Invoice factoring provides a lifeline, ensuring that companies can maintain steady cash flow, which is essential for survival and growth.

Sunwise Capital’s Factoring Features

  • Online Account Management: Easily track your finances with our invoice factoring calculator and user-friendly online platform.
  • Flexible Financing Options: Choose which invoices to factor in and decide on the amount that works for your business’s needs.
  • Hassle-Free Process: We handle the paperwork and application process for your invoice factoring agreements at no cost to you.
  • Credit Checks: Free credit checks are available to assess the creditworthiness of your customers.
  • Comprehensive Financial Solutions: Our factoring facilities come with highly competitive rates and a low cost of transaction fee, backed by our robust guarantees.

A Replacement for Traditional Financing

Invoice factoring offers a unique alternative to conventional loans and financing methods. It’s an accessible option for those seeking funding options without the structure of a loan.

Factoring Terms and Rates

The term of the financing agreement can range from 14 business days up to 12 months, dictated by the invoice size and customer creditworthiness. Factors can charge varying discount rates from 2% to 20%, influenced by industry standards and the customer’s credit history.

Requirements and Obligations:

  • Collateral: Some factors may require collateral, such as inventory or equipment.
  • Software Integration: Factors may necessitate specific accounting software, with some offering free integrations and others charging a fee.
  • Additional Fees: Be aware of potential document preparation costs, late fees, and account setup expenses.
  • Personal Guarantee: Business owners may be asked to provide a personal guarantee when entering a factoring agreement.

The Invoice Factoring Process

  • Your business operates and bills customers as usual.
  • You select invoices to factor and receive 70% to 90% of the invoice value upfront.
  • The factoring provider manages the collection from your customers.
  • You receive the remaining value of the invoice after the customer pays, minus the factoring fee.

When to Consider Invoice Factoring

Invoice factoring is beneficial when traditional loan avenues are closed and you’re experiencing a cash crunch due to unpaid invoices. This solution can be constructive for businesses with B2B models, where delayed payments are standard.

Use the cash infusion to cover essential costs such as:

  • Bridging gaps in expenses
  • Debt repayments
  • Capitalizing on seasonal or economic opportunities
  • Expanding your business

Evaluation for Invoice Factoring

To assess if invoice factoring is appropriate for your business, calculate the percentage of sales represented by overdue invoices. This analysis, along with a clear understanding of the fees involved, will help you decide whether the immediate cash flow benefit outweighs the cost of the service. Sunwise Capital is committed to providing transparent and straightforward financial solutions that support your business’s growth and stability.

What About Short-Term Loans?

When unforeseen expenses arise, or lucrative opportunities arise, Sunwise Capital stands ready with short-term loans tailored for small businesses like yours. Whether you’re dealing with emergency expenses, unpaid invoices, temporary cash flow gaps, the need for equipment financing, or you’re poised to capitalize on a new business opportunity, our short-term loans provide a viable solution.

Quick Application, Quick Cash

Recognizing that time is often a luxury you can’t afford in business, our application process is designed to be quick and straightforward. 

In less than five minutes, you can apply for loans ranging from $10,000 to $2 million. We make it possible for business owners with varied credit histories to receive the funding they need swiftly.

Act Fast, Succeed Faster

The business world is full of surprises. Quick action can make the difference between a thriving venture and one that stalls. Our approval process for short-term loans ensures you can get the quick cash you need to navigate the unexpected. Approval can be in hours and funding the same day to the next business day.

The Benefits of Short-Term Business Loans

Choosing the right loan term is critical. While most companies will require additional funding eventually, the difference between long-term and short-term loans is stark. 

Short-term loans, typically repaid within a year or less, offer immediate financial relief without the long-term burden of substantial debt or interest accumulation. 

These loans can bolster your cash flow or fund expansion, setting the stage for long-term growth.

Fast Funding When It Matters

With Sunwise Capital, funding the same or the next business day is not just possible; it’s common. The absence of lengthy waiting periods means you can put your funds to work immediately, whether for an urgent repair or a critical upgrade.

Higher Approval Rates, Lower Stress

We understand that not every business owner has perfect credit or collateral to offer. That’s why Sunwise Capital maintains higher approval rates for short-term loans than many traditional lending institutions, offering a lifeline without stringent requirements.

The Versatility of Short-Term Loans

Often referred to as the “Leatherman” of loans, a short-term loan from Sunwise Capital can serve as a crucial tool for navigating tight spots. It’s the kind of financial resource you want readily available – versatile, accessible, and ready to help you through a rough patch or fund a short-term project.

Simplified Loan Acquisition

Getting a short-term loan doesn’t have to be an uphill battle. With Sunwise Capital, it’s realistic to secure financing with just OK credit and a minimum of one year in business. 

Unlike some lenders, we don’t require collateral, which simplifies the process and broadens the eligibility for this type of financing.

Are You Eligible?

To discover whether you’re eligible for a short-term or working capital loan, we invite you to complete our free, no-obligation online application. 

We’re committed to transparency and will promptly inform you of your qualification status, helping you make informed financial decisions for your business.

Qualifying Criteria for a Private Lender Loan

Qualifying for a loan from a private lender typically involves meeting less stringent criteria than traditional bank loans, but certain benchmarks still apply.

Credit History and Personal Credit Score

A business owner’s personal credit score can be a significant factor in securing a private lender loan. Lenders may also consider the credit history of the business.

Proof of Income and Cash Flow

Private money lenders will want to see proof of steady income and healthy cash flow to ensure that the loan can be adequately serviced.

Are You Interested in Getting a Merchant Cash Advance?

A Merchant Cash Advance provides immediate financial support by advancing a sum of money against your business’s future credit card sales. 

The repayment is uniquely flexible – it’s a percentage of your daily sales, which means we get paid when you get paid, mitigating the pressure of fixed repayments.

We determine the rates of our cash advances using a factor rate applied to the principal. 

For example, if we advance you $100,000 at a factor rate of 20%, you would repay $120,000 in total. 

While these rates might be higher than traditional loans, they reflect the swift and flexible nature of the advance, especially beneficial to businesses with high credit card turnover.

Our MCA does not require any collateral, offering peace of mind and security to business owners who might be struggling financially. 

The factor rate we apply will reflect the associated risk, which means that even if your business is experiencing difficulties, you might still be eligible for an MCA, albeit at a higher rate or a smaller amount.

Merchant Cash Advance Program Variables

Our MCA rates and terms are tailored based on various factors, including:

  • Time in Business
  • Type of Business and Industry
  • Annual Revenues and Cash Flow
  • Daily Bank Balances
  • Business and Personal Credit Scores
  • Overall Business Credit Profile
  • Web Presence

Here’s What Sunwise Capital Offers

We pride ourselves on our quick and efficient service, with an application process that’s entirely online, free, and without obligation. 

Our MCA lending team assesses your revenue swiftly to offer a decision in minutes, and the funding process is equally fast – typically within hours or the next business day.

Best Uses for Merchant Cash Advances

An MCA is best utilized for:

  • Immediate growth opportunities
  • Hiring and payroll needs
  • Marketing and advertising
  • Equipment and inventory
  • Renovations and upgrades

Getting Approved for a Business Cash Advance

Our requirements for approval include:

  • A minimum credit score of 500, with special programs for higher scores.
  • At least 6 months in business.
  • A minimum of $200K in gross annual revenue.
  • The ability to manage existing debt, including liens up to $200K.

Will My Company Be Approved For A Merchant Cash Advance?

We consider multiple facets of your business, including at least 3 months of bank statements. Your current financial status and the purpose of the cash advance play roles in the approval process. We aim to assist those struggling to keep up with bills or facing a slow season.

What Types Of Businesses Should Use A Merchant Cash Advance?

An MCA from Sunwise Capital is an excellent solution for small businesses that require quick access to working capital, such as those with significant credit card transactions. 

While the cost associated with an MCA is higher due to the increased factor rates and fees, it is often offset by the ease and speed of obtaining the funds.

Merchant Cash Advance with Bad Credit?

Yes, it’s possible. At Sunwise Capital, we look beyond credit scores. While a traditional bank focuses primarily on credit scores, we consider your business’s overall revenue performance, operational history, and accounts receivables, leading to a higher approval rate even for those with less-than-perfect credit.

How to Apply for a Private Lender Business Loan

Applying for a private lender business loan involves several steps:

  1. Research: Identify the right type of loan and the best private money lenders for your business needs.
  2. Prepare Your Documents: You’ll likely need financial statements, business plans, and personal financial information for larger loans over $500K.
  3. Submit an Application: This can usually be done online. Be thorough and honest in your application.
  4. Understand the Terms: Before accepting any loan, understand the repayment terms, interest rates, and fees involved.

Private lender business loans can offer an alternative route to funding for small businesses, providing a range of loan types to suit various needs. 

While they can offer faster access and less stringent requirements than traditional loans, it’s important to weigh the higher costs and shorter terms typically associated with private lending against the needs and capacity of your business. With the right approach, a private lender could be the partner your business needs to move to the next stage of its growth.

Support

Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. about the author.

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