A Comprehensive Guide to Private Business Loans

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An Overview of Private Business Loans

When your business needs money, the best thing to do is to explore all of the viable options for small business loans. Although more traditional forms of funding might be the first to come to mind, private business loans should also be on your list of options.

In this guide, we’ll go over the details of private business loans, including what they are, where you can get them, and the different types.

Top Lenders of Private Business Loans

Who are the best of the many private lenders that you can choose to work with? That depends on what type of private small business loan you want to acquire. Nonetheless, there are a few private business loan superstars that offer a myriad of loan types to small business owners of all qualifications.

Let’s take a look at the top private business loan providers in the industry.

    BlueVine

    Up first is BlueVine, an online private business loan lender that offers both invoice financing and short-term business lines of credit to small business owners.

    Their invoice financing is a particularly accessible funding option for business owners with a minimum personal credit score of 530 and three or more months in business. If it’s a line of credit you’re looking for, you’ll need a minimum score of 600+ and six or more months in business.

    CAN Capital

    Next up, CAN Capital is another private business lender that offers both short-term loans and traditional term loans.

    CAN Capital’s products are great, comparable private business loan alternatives to bank loans. In order to qualify for either a merchant cash advance or term loan, applicants should have at least six months in business, more than $150,00 in gross revenue, less than $175,000 in outstanding tax liens or judgments, and no personal or business bankruptcy that hasn’t been discharged for at least a year.

    Credit Junction

    Another private business loan lender, Credit Junction, specializes exclusively in a secured business line of credit with a very specific payment structure.

    With Credit Junction’s private business loan, you’ll make interest-only payments throughout the life of your line of credit, then you pay a balloon payment of the principal sum at the end of the line of credit’s term.

    Direct Capital

    Direct Capital offers a short-term private business loan that is repaid through fixed daily payments.

    Direct Capital can fund small businesses their short-term loans in as little as one day. But in order to be eligible for Direct Capital‘s short-term loan product, you’ll need a personal credit score of 680 or higher, along with annual revenue of at least $200,000.

    ForwardLine

    Another short-term private business loan lender, ForwardLine boasts pricing that’s both reasonable and transparent, which is especially remarkable for a short-term loan provider.

    Fundation

    A great alternative to traditional bank loans is Fundation.

    Their term loans come with reasonable rates and bi-monthly payment schedules. To be eligible for one of these loans you need at least two years in business, three employees or more, and annual revenue of at least $100,000.

    Fundbox

    The online private business loan lender Fundbox offers invoice financing for business owners waiting on outstanding invoice payments.

    With very lax minimum credentials, Fundbox’s invoice financing is one of the most accessible options on the market.

    Funding Circle

    Another great alternative to a bank loan, seeking a private business loan from Funding Circle is a great option for business owners seeking a term loan.

    Their repayment ranges from six-month to five-year terms of fixed monthly payments, just like a traditional term loan you’d secure at a bank.

    Headway Capital

    The next private business loan lender on our list, Headway Capital, offers revolving lines of credit of values anywhere from $5,000 to $50,000.

    In order to be eligible for one of these loans, you need at least one year of business history and a minimum annual revenue of $50,000. Additionally, Headway can only fund businesses in certain states, so check to make sure you’re eligible before applying.

    InterNex Capital, LLC

    Another private lender that provides business lines of credit is InterNex Capital, LLC.

    InterNex Capital’s lines of credit are secured by a business’s accounts receivable. You’ll need three months of business bank statements, year-to-date profit and loss statement, current accounts receivable aging report, and a year-to-date balance sheet to apply.

    Kabbage

    Another business line of credit provider, Kabbage specializes in short-term lines of credit that are designed to provide small business working capital and to do it quickly.

    The qualifications for Kabbage are fairly easy compared to some other lenders. You need to have been in business for at least a year and have a minimum annual revenue of $50,000, or alternatively $4,200 each month for the last three months.

    Lending Club

    For a fixed-rate term loan option, look to Lending Club.

    Lending Club’s private business loans are fully amortized and come with no prepayment penalty. The online application process is fairly quick. They’re looking for borrowers with at least one year in business, no recent bankruptcies or tax liens, and at least $50,000 in annual sales.

    OnDeck Capital

    Connecting small business owners with private business financing in the form of short-term loans and lines of credit is what OnDeck does best.

    You can fund with OnDeck for a value of anywhere from $5,000 to $250,000, and their APRs can dip as low as 8.5%. Your best chance with OnDeck is if you have a personal credit score of 600 or more and have been in business for at least one year.

    Rapid Finance

    Another private business loan lender that specializes in short-term loans is Rapid Finance, formerly RapidAdvance.

    Rapid Finance offers everything from small business loans to merchant cash advances and bridge loans. You will need four months of business bank statements, and for loans over $105,000, you’ll also need your most recent tax return and balance sheet.

    StreetShares

    The veteran-owned StreetShares offers private business loans in the form of term loans, lines of credit, and contract financing.

    Plus, eligibility requirements are minimal: You need just one year in business and just $25,000 in annual revenue.

    The Business Backer

    Short-term loans, lines of credit, and merchant cash advances from The Business Backer are additional private business loan options you can explore.

    To qualify, you’ll need at least $250,000 in revenue, a personal credit score of 600, and one year in business.

Types of Private Business Loans

Now that we’ve gone over who you can work with for a private business loan, let’s take a look at what you’ll be able to work with.

When it comes down to it, private business loans come in many shapes and sizes, so you should become familiar with all of your available options to make sure you’re choosing the best possible option for you and your business.

Here are the main types of private business loans available on the market.

SBA Loans

When it comes to private business loans, SBA loans are a bit of a gray area.

Though they are often funded by a private lender, SBA loans are always partially guaranteed by a government entity, the U.S. Small Business Administration (SBA).

Because of this partial guarantee, SBA loans come with long terms, low APRs, and high loan amounts. As such, they’re the cream of the crop as far as your private business loan options.

Keep in mind that, because they have such ideal terms, SBA loans will always be some of the most difficult to qualify for. Most business owners that qualify for SBA loans have good personal credit, high annual revenue, and a long business history under their belt.

Medium-Term Loans

Next up: medium-term loans. These private business loans are often referred to as term loans and they’re another affordable private business loan option for small business owners.

They mirror traditional term loans that banks offer to businesses, but they’re often far easier to qualify for with a private lender.

These loans are likely what you picture when you picture a business loan—a lump sum paid back over time, plus interest, with monthly payments.

After SBA loans, term loans are the most affordable but hardest to qualify for out of your private business loan options.

Short-Term Loans

A riff on traditional term loans, short-term loans are another private business loan option for small business owners.

Short-term loans are paid back on a daily or weekly basis over a short amount of time. With higher APRs and shorter payment terms, these private business loans will often end up being more expensive than their longer-term counterparts.

That said, short-term loans are far more accessible than traditional term loans. With minimum requirements like a 550+ FICO score, at least one year in business, and $50,000 in annual revenue, short-term loans are a great option for less-qualified business owners.

Lines of Credit

Another type of private business loan is the business line of credit.

Though there are many different types of business lines of credit, all of them work a bit like a business credit card. With this private business loan product, you’ll gain access to a line of credit that you’ll be able to draw from as you please, up to your credit limit. With business lines of credit, you’ll only have to pay interest on what you end up using, and you can often keep them in your back pocket for a rainy day or an exciting opportunity.

Equipment Financing

Another form of private business loan is equipment financing. This type of loan grants money to business owners who need to invest in equipment for their businesses.

With equipment financing, your loan can fund up to 100% of the value of the equipment you need to buy. And because the equipment itself will collateralize the loan, business owners are able to access lower rates and longer terms.

Additionally, this collateral often makes qualifying for equipment financing that much easier.

If you need a private business loan specifically to buy equipment, this loan type is probably your best bet.

Invoice Financing

Similar to equipment financing, invoice financing can fund B2B businesses in very specific financial situations.

If you’re waiting for an invoice payment to be fulfilled, but you need access to cash in the meantime, you can seek invoice financing.

Invoice financing will give you an advance of 50% to 90% of your invoice. When your invoice payments come through, you’ll get the remaining percentage of the invoice, less the fees that the lender charges for the advance.

Because this type of private business loan is collateralized by the invoice itself, you’ll be able to access more affordable funding with fewer requirements.

Merchant Cash Advances

Finally, merchant cash advances are by-and-large the most accessible form of private business loan on the market. That’s because the minimum requirements for merchant cash advances are lower than all other funding types—you’ll likely be able to qualify with a 400+ credit score, five months in business, and $75,000 in annual revenue.

That said, merchant cash advances are also generally the most expensive type of private business loan. Merchant cash advances take payments in the form of a percentage of your business’s daily credit card sales. The cost of a merchant cash advance is expressed as a factor rate, often from 1.14 to 1.18. With a factor rate, you multiply your principal loan amount by the factor rate to find out how much it will end up costing.

As a rule, because they’re so expensive, you should probably only take a merchant cash advance if you have no other business funding option.

The Advantages and Disadvantages of Private Business Loans

Advantages

With all of that information laid out in front of you, you’re probably still weighing your options.

As a result, you’re probably considering the pros and cons of private business financing.

Well, there are many factors to consider—most of which are situational and specific to you and your business—but taking a look at the big-picture perks of private business funding might help you get a more holistic view of the situation.

Let’s take a look at the main reason you should consider a private business loan:

    Quicker Financing Tailored to Your Situation

    Overall, a private business loan will end up in your hands far quicker than a bank business loan. Plus, private business loans are often better tailored to specific financial situations, such as buying equipment or advancing an invoice, whereas traditional bank term loans are pretty much one-size-fits-all.

    If you and your business need funding quickly, you can turn to private lenders. Additionally, if you want a loan that’s tailored to how you run your business, then a private business loan can be a better fit.

Disadvantages

All that said, private business loans certainly come with downsides as well.

Let’s take a moment to consider the main thing that a private business loan could leave to be desired:

    Less Desirable Rates

    While it’s just one downside, the fact that private business loans typically have less desirable rates encompasses a lot of cons—shorter payment terms, lower loan amounts, and higher APRs all wrapped into one.

    At the end of the day, you shouldn’t consider this downside lightly—if you have the time to undergo the paperwork and the credentials to qualify, a bank loan will likely end up costing you less than a private business loan.

Frequently Asked Questions

Should You Fund With a Private Business Loan?

With all of this information on private business loans laid out in front of us, what’s the bottom line? Should you fund using one of these private business loans?

At the end of the day, you should fund with the loan that’s able to provide you and your business the best terms and structuring possible, be it a bank loan or a private business loan.

The “best possible” loan might look different from one business to another. Maybe one small business needs funding quickly and is able to pay for it, while another small business is willing to forgo borrowing until they find the best deal possible.

Just like no two small businesses are alike, no two small business funding options are exactly the same. You’ll need to explore your loan options, both private and non-private, to figure out what works best for you.

See Your Business Loan Options
Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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