Is It Better to Borrow From a Bank or Private Lender?

Is It Better to Borrow From a Bank or Private Lender?

By Tex Freitag

If you’re considering a personal or business loan to get you through a financial hardship, you need to know the difference between a bank and private lender.

Many people need financial help from time-to-time, and most commonly this is in the form of a loan. While there is a myriad of loan types on offer today, two of the most common include a standard bank loan and a private lender loan.

But what is the difference between these two loans and why choose one over the other? Let’s see how private lender differ from bank loans and the pros and cons of each:

How Do Private Lenders Work?

Private lenders are generally businesses or individuals looking to invest in sound business opportunities. In other words, they are in the business of making money, by lending money in the form of an investment. Check out Money Trumpet for brilliant private lender access.

Private lenders are more entrepreneurial in nature, so the outcome of their investments vary. This means that a private lender can be a little more lenient when it comes to qualifying for a loan.

Private lenders have one main priority when lending money: mitigating risk. Some of the most important considerations they will look at when making an investment include: market value, borrower equity, and credit, additional collateral, pricing strategy, exit strategy, and due diligence.

How Do Traditional Bank Loans Work?

Banks are the largest lending institutions you can get and probably the first place people think of when considering a loan. This is especially true for businesses. Bank loans typically offer the lowest-cost financing, but they’re not always easy to qualify for.

Bank loans are often secured by collateral if you have a poor credit score or financial history. The interest rate on a bank loan is determined by your credit score, too. Bank loans must be paid back over a certain period of time, with regular payments usually deducted off your checking account each month.

If you qualify for a bank loan, this is one of the most affordable ways of maintaining cash flow for a business. It also allows you the opportunity to expand your business without huge loan repayments hanging over your head.

The Pros and Cons of Private Lender Loans

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