Do you know that only 48 percent of small businesses have met all of their financial requirements? After applying for a loan, 9 percent of small businesses didn’t receive capital, while 14 percent got only part of the money requested.
So, if you own a small business, you should consider finding a private lender to assist with your startup business expenses.
Conventional lenders like banks do not always work well for most business financing needs. Private lenders for business startup loans are the most suitable options for your small business loans.
But, finding private lenders and convincing them to fund your business startup can be a long and overwhelming process. That’s even so if you often walk into your bank to ask for money.
Keep reading to know how to choose private lenders for business startup loans.
Understanding How Private Lending Works
There are various private lenders, ranging from your Aunt Salome to companies specializing in hard money loans. Before getting much further in the process, know the kind of private lender you want to engage.
Note that the process of getting funds from friends and family is very different than trying to get money from accredited investors. The process involves looking for lenders, pitching them, and repaying them.
You need to know the kind of private lender you want. You also have to be comfortable with the pros and cons of the private lender.
What are their paying rates? After how long do you plan to pay the loan? What will happen if your business goes under before repaying the loan?
Private lenders must perform a background check on you and your business to see if you qualify for the loan.
If you qualify for a small business loan, the lender may file a UCC financing statement. Pre filing UCC financing statements are legal forms that allow lenders to announce a lien on your secured loan.
That means your lender has the right to seize, foreclose, or sell the underlying collateral once you fail to repay the loan. But, if you have a good plan before applying for a loan, this is nothing to worry you.
But, first, understand what you’re getting into before beginning your lender search.
Starting Your Search
After knowing the type of private lender you want, it’s time to search for them. Often, this will be the major part of the process.
You may take a long time to find a willing lender. That’s so, especially if you don’t have any previous projects to back your worthiness.
But, one way you can go about your search is through networking. Networking is a proven way to get you individuals, accredited investors, and money lending companies.
Look for places you can enhance your network. Consider attending real estate seminars and events if you’re into real estate.
The internet will help you expedite your search. You can do a simple Google search for the private money lenders in your area.
There are also dedicated lending sites to find private lenders. Such a site is the private Lender Link. But, know that the lenders you find in Google searches have more pitches than the ones you will locate organically.
Apart from searching for a moneylender, why don’t you make them come to you? If that’s the case, you must conduct a marketing campaign.
Facebook, LinkedIn, and Instagram are good social platforms to conduct your marketing campaign. Include details on the kind of funding you want, your business, and why you are a good investment.
Preparing a Compelling Pitch
After finding a few private lenders, it’s time to develop a compelling sales pitch for you and your project. The form of your pitch will depend on the type of money lender you choose.
Your friend may not want a 30-slide presentation. But, an accredited investor may want exactly that. Try and tailor your pitch to the lender you are contacting at the moment.
Regardless, here are a few universal elements to include in your pitch:
- Why do you require funding
- What is your project about
- The working capital you need
- Why you are a good investment
- Your relevant past experiences
You only have to fill out an ordinary loan application form when you decide to go with a private lending company. You won’t have to send in a pitch.
But, as we mentioned before, a lot will depend on the lender you choose. Many lenders always ask for documents like bank statements, tax returns, and profit and loss statements.
Choosing Your Desired Lender
If the pitch goes well, a money lender will be willing to give you a business startup loan. You might have a few options of lenders to choose from now.
But, you don’t have to work with the first person offering you a business loan. You should know more about the lender by asking relevant questions like:
- What is their funding process?
- What do they expect from the deal?
- Do you have to check in?
Answers depend on the private money lender you pick. No matter the case, ensure you have the following vital aspects of your loan in check:
- Interest rates
- Payment amount
- Fees, I.e., prepayment penalties
- Frequency of payments
- Loan repayment term
If the answers satisfy you, go ahead with the deal. But, if anything looks suspicious, consider looking for a different money lender. You cannot afford to risk with such big financial transactions.
Time to Seal the Deal
After finding a private lender that fits all your requirements, it’s time to get your funding. No matter the kind of lender, it’s crucial to have legal documents for your deal.
Companies and hard money lenders always have such kinds of documentation. But, you might need to create them when dealing with a friend or family member.
Ensure you keep up with your repayments after acquiring your small business loans.
Find Private Lenders for Business Startup Loans
Finding private lenders for business startup loans should not always be a long and grueling process. Yes, it can pose a challenge, but it’s very doable.
Nowadays, private lenders offer new products, flexibility, and many other advantages.
With such suitable advantages to your small business, it’s time to ask for help funding your dreams.
If you’ve enjoyed reading this blog check the other blog posts on our website.
Hemant Kumar is a project manager at Tridindia with more than nine years of commendable experience in writing about LMS, translation, and IT. His unmatched talent and passion for digital marketing gave him the opportunity to work as a multi-tasking project manager at TridIndia’s sister company, Link Building Corp. Today, he contributes to the world by imparting knowledge on SEO, link building and internet marketing etc., that helps business owners grow their online business.