How to Spot a Good Private Lender for Your Business

When you can’t get through banks and other traditional lenders for business funding, private lending may emerge as a viable alternative. Private lenders can be more lenient in their eligibility requirements and allow faster transactions since they are less regulated than banks. They can be a convenient option, especially if you need to make payroll on time or pay for sudden repairs. However, not all private lenders are cut from the same cloth. So, we’re here to help you spot a good private lender for business.

Key Takeaways of Spotting a Good Private Lender

Key Points	Description
The Ins and Outs of Private Lending	Private lending involves loans from non-institutional lenders, presenting an alternative to the traditional banking system.
When to Consider a Private Lender	Private lending can be a strategic choice for businesses when they need quick funding or fail to meet banks’ eligibility requirements.
What You Should Look for in a Private Lender	A good lender provides transparency, fair interest rates, speedy transactions and a demonstrated history of settling the loan size you’re seeking.
Beware of These Red Flags	Apart from looking for the features of a reputable lender, be sure to watch out for red flags to avoid getting unfair loan terms.

The Ins and Outs of Private Lending

Private lending involves loans from non-institutional lenders, these could be wealthy investors, family offices, super funds or a combination of these. These lenders offer private loans for businesses, presenting an alternative to the traditional banking system. As mentioned, they can be more flexible than banks and other mainstream financial institutions. For one, they don’t care about your credit history. So, if you can’t acquire business loans from banks due to poor credit, you can rely on private lenders for funding. Also, there are no restrictions; you can use private loans for any business expense or venture.

Private lending almost always involves security; you can use business assets or properties as security to back your loan application. Unsecured private business loans can also be accessible, if you can demonstrate the cash flow required to service the loan.

When to Consider a Private Lender

Private lending for business is a strategic choice, especially in the following scenarios:

What You Should Look for in a Private Lender

It’s important to understand that Private Lending is an unregulated form of lending and there is significant variation in the quality of lenders. Here are some of the attributes of a reputable lender:

Transparency
A trustworthy private lender for business doesn’t just respond to your queries—they proactively clarify details. Expect them to openly discuss interest rates, fees, repayment terms, and potential penalties right from the start.
Fair Interest Rates
While private loans for businesses may come with higher interest rates than traditional bank loans, they should still be competitive and fair. Do your homework on the current market rates to ensure the offer on the table is fair and competitive.
Flexible Terms
Flexibility is one of the benefits of private lending. Seek lenders who can customise terms to suit your company cash flow patterns and financial needs.
Solid Reputation
A good lender should have a solid reputation in the market. Check for client reviews and any industry accolades. Also, don’t underestimate word-of-mouth referrals; they can be a valuable source of information, helping you narrow down your options.

Speed of Service
A private loan for a business is often sought after for its quick processing times. If fast access to funds is crucial for your business, ensure the lender has a track record of quick approvals and fund disbursement.
Customer Service
Engaging with a lender that offers excellent customer service can make the borrowing experience much smoother. So, choose a private lender that is attentive to your needs and willing to answer your questions—no matter how many they are.
Regulatory Compliance
Private lenders are less regulated than banks, but that doesn’t mean they can operate without a credit licence. So, check if the private lender you’re eyeing for is compliant with all relevant Australian financial regulations. That way, you can gain peace of mind and benefit from another layer of security to your business dealings.

Beware of These Red Flags

Want to spot a good private lender effectively? Apart from looking for the features of a reputable lender mentioned above, be sure to watch out for these red flags:

Ridiculously Low Rates

Extremely low rates can be a trap. Is the interest rate significantly below the market average? Proceed with caution. Some Private Lenders have a behaviour of charging an ‘assessment fee’ or a ‘due diligence’ fee of many thousands of dollars even though they no intention of providing a loan.

Too-Good-to-Be-True Offers

Most reputable private lenders maintain a loan-to-value ratio (LVR) below 70 or 80%. So, be wary of lenders offering a 100% LVR.

Large Upfront Fees

Some lenders may offer low rates or high LVR but with substantial upfront fees. Scrutinise these fees to avoid overpaying.

Unreasonable Cancellation Fees

High cancellation fees can be a red flag. It’s important to understand the implications of withdrawing from the loan agreement.

Get a Free Loan Quote Today

Ready to explore the possibilities that private lending can offer your business? darkhorsefinancial.com.au is here to guide you through every step of the process. With our expertise and commitment to personalised service, we’ll help you find the private lending solution that perfectly aligns with your business’s unique needs. Contact us today or get a FREE loan quote to learn more about your loan options.