Increasingly, small businesses are turning to private loans to finance business expansions or ongoing operational costs. Private credit accounted for approximately 30% of the credit market in 2021, growing from $400 billion in assets to over 1 trillion dollars since 2012.

This type of financing usually comes with flexible terms, customized solutions and quick access to capital. So if your company needs funding but you don't want to apply for a traditional bank loan, here's how the private loan works and how you can access it.

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What is a private loan?

The term private loan usually refers to non-bank loans issued to businesses – peer-to-peer lenders, online lenders and funding marketplaces are all examples of this. This financing option has been particularly useful for small businesses recently, given that banks are not lending to businesses due to market conditions and their notorious risk-averse behavior.

Private credit gives companies access to various short-term and long-term financing options. Your company can then use this funding to finance start-up costs, a business expansion or working capital.

Benefits of private credit

Here are the biggest benefits of personal loans for small businesses:

• Quick access to the capital: When you apply for a bank loan, the application process can take weeks to months to process. In comparison, loans from non-bank lenders usually take less than a week. Some lenders even offer same day financing. This is a huge advantage for businesses that need to act quickly on a business opportunity.

• Flexible financing: Private credit is also more flexible when it comes to collateral requirements and repayment terms.

• High approval rate: Banks prefer lending to larger and more established companies. Non-bank loans have a much higher approval rate for small and medium-sized businesses.

• Custom solutions: Since the year non-bank lenders have experience working with small businesses, they can provide customized financing solutions to meet your company's needs. For example, some lenders offer asset-based financing where the loan is secured by the company's assets.

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How small businesses can access private loans

Here are the steps you will take to assess your situation, find the right lender and successfully access financing.

Determine your needs:

Start by determining why you need financing and what you plan to use the funds for. For example, are you taking out a loan to cover day-to-day expenses, such as payroll or inventory? Or do you want to buy new equipment to increase production or improve efficiency?

Assessing your current and future borrowing needs will help you determine the type of financing you are looking for. For example, if you have a good idea of ​​how much you're looking to spend, taking out a loan might make sense. But if you're not sure how much money you'll need, you might want to choose one line of credit.

Prepare the necessary documents

It is a good idea to collect the necessary documents before applying for a private loan. Specific requirements will vary depending on your lender, but most will want to see the following information:

• Business information: Not all lenders require a business plan, but you should provide some basic information about your business. At a minimum, you'll need to provide your company name, address, and Employer Identification Number (EIN).

• Financial statements: You will also need to provide financial statements such as a profit and loss statement, balance sheet and cash flow statement. This information helps your lender understand the financial health of your business.

• Tax declarations: Most lenders will want to see at least one year of personal and business tax returns. Tax returns help your lender assess your financial situation and your ability to repay the loan.

• Bank statement: You will also need to provide at least six months of bank statements.

• Business documents: Your lender will also want to see your business's articles of incorporation and any relevant business licenses.

Compare your offers

It's always a good idea to get pre-approved with a few different lenders before choosing the one you want to go with. Applying with a minimum of three different lenders allows you to compare potential interest rates, fees and repayment terms. It also gives you more negotiating power because you're not putting yourself in a situation where you have to accept the first offer that comes your way.

Of course, submitting multiple loan applications can become tedious and take up a lot of your time. If you need a faster solution, consider using an online lending marketplace. When using one credit marketyou will apply once and receive offers from many lenders.

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If you are looking for alternative to bank loans, private credit is an excellent option. These loans are more accessible and give your company the resources it needs to continue growing.

When you take out private loans, you can gain access to support that goes beyond the application process. But it's important to look for the right non-bank lenders. National Business Capital has been working in private loans for 15 years; We are already an expert in this market.