In a world where innovation is the key to success, many entrepreneurs find themselves on the cusp of launching their dream ventures. Though the term ‘private lenders’ may sound scary to a startup founder, there is more to the story!
Private Lenders for Business Startup Loans: Guides, Lenders, Risks, & Tips for 2023 – An Alternative to Traditional Financing
One of the biggest hurdles that startup founders and CFO’s face is securing financing to get their businesses off the ground. While banks are the traditional avenue for startup business loans, they often come with stringent requirements that many startups can’t meet. This is where private lenders for business startup loans come into play as a viable alternative.
What are Private Lenders?
Private lenders are non-institutional or individual entities that lend money for various purposes, including business startup loans. Unlike traditional financial institutions like banks, private lenders usually have less stringent criteria for lending, offering more flexibility in terms of loan amounts, repayment terms, and qualification requirements.
These lenders can be individuals, peer-to-peer lending networks, or specialized lending companies that are focused on serving the specific needs of startups and small businesses.
How Private Lenders Operate:
Private lenders usually operate outside the traditional financial systems and regulations. While this may sound like a “Wild West” of lending, many private lenders are reputable organizations or individuals offering a legitimate financial service. Most private lenders will assess the viability of your business model, your creditworthiness, and other factors such as your experience in the industry before approving a loan.
Typically, the loan application process is quicker and less cumbersome compared to a traditional bank. In some cases, you may even get approved within 24-48 hours and receive the funds soon after! The repayment terms and interest rates can vary widely, so it’s important to read the fine print and understand the terms before accepting a loan.
4 Must-Read Benefits of Private Lenders
- Speed and Convenience: One of the most significant advantages of private lenders is the speed at which they can process loan applications. Startups often operate on tight schedules and cannot afford to wait weeks for loan approvals. With private lenders, you can often get quick decisions and fast disbursal of funds.
- Flexible Criteria: Private lenders usually have more relaxed qualification criteria, making it easier for startups with less-than-perfect credit scores or limited business history to secure loans.
- Customizable Loan Terms: Unlike traditional loans, which often come with set terms and conditions, private loans can often be customized to suit the specific needs of your business, from the repayment schedule to the interest rates.
- Higher Approval Rates: Generally, private lenders have higher approval rates compared to traditional banks, which often have rigorous criteria that many startups fail to meet.
3 Risky Drawbacks of Private Lenders
- Higher Interest Rates: Private lenders typically charge higher interest rates than banks to compensate for the greater risk they are taking.
- Less Regulation: The private lending industry is not as heavily regulated as traditional banking, making it important for borrowers to do their due diligence before securing a loan.
- Variable Repayment Terms: The flexibility that makes private lenders appealing can also be a drawback if you’re not careful. Be sure to fully understand the repayment terms, as they can vary widely from lender to lender.
Choosing a Private Lender in 4 Steps
Choosing the right private lender for your startup business loan is crucial for long-term success. Here are some factors to consider:
- Interest Rates: Look for the most competitive rates you can find that fit your business model.
- Reputation: Do your research to ensure that the lender has a good reputation. Read reviews, consult industry experts, and ask for referrals.
- Loan Terms: Consider the loan terms carefully. Make sure you understand the repayment schedule, any possible penalties, and any other terms associated with the loan.
- Transparency: Make sure the lender is upfront about all fees, rates, and terms, so there are no surprises down the line.
40 Private Lending Companies for Startup Business Loans
Below is a list of 40 private lending companies that specialize in startup business loans, along with summaries explaining why each one could be a good option for a startup founder looking to secure funding:
1. OnDeck
Why it’s Good: OnDeck offers fast approval and disbursement of funds, often within 24 hours. They are known for their streamlined online application process and transparent terms.
Loan Types: Term loans, lines of credit
Minimum Requirements: Minimum 600 credit score, at least one year in business, and $100,000 in annual revenue.
2. Kabbage
Why it’s Good: Kabbage is ideal for startups looking for lines of credit. Their automated approval process allows quick access to funds.
Loan Types: Line of credit
Minimum Requirements: 640 credit score, one year in business, and at least $50,000 in annual revenue.
3. BlueVine
Why it’s Good: BlueVine specializes in invoice factoring, which can be beneficial for startups with outstanding invoices. They offer quick funding and straightforward terms. Check out Bluevine vs Fundbox here.
Loan Types: Line of credit, invoice factoring
Minimum Requirements: 530 credit score, at least three months in business, and $10,000 in monthly revenue.
4. Funding Circle
Why it’s Good: Funding Circle offers long-term loans with low-interest rates, making it ideal for startups looking to make significant investments in growth.
Loan Types: Term loans
Minimum Requirements: 660 credit score, two years in business, and no minimum annual revenue requirement.
5. LendingClub
Why it’s Good: LendingClub offers peer-to-peer lending, allowing startups to secure loans from individual investors. They offer competitive rates and flexible terms.
Loan Types: Term loans, lines of credit
Minimum Requirements: 640 credit score, one year in business, and $50,000 in annual revenue.
6. Prosper
Why it’s Good: Prosper offers personal loans that can be used for business purposes, which may be useful for very early-stage startups without a business history.
Loan Types: Personal loans for business use
Minimum Requirements: 640 credit score, no business history required, but personal financial history is scrutinized.
7. Accion
Why it’s Good: Accion specializes in providing loans to underserved business communities, including startups. They offer mentorship along with financial support.
Loan Types: Term loans
Minimum Requirements: Varies by location, often lower than average credit score and revenue requirements.
8. Fundbox
Why it’s Good: Fundbox offers short-term loans and lines of credit. They are known for their simple application process and fast funding.
Loan Types: Short-term loans, lines of credit
Minimum Requirements: No minimum credit score, at least six months in business, and $100,000 in annual revenue.
9. Credibly
Why it’s Good: Credibly offers a range of products from short-term loans to merchant cash advances, providing flexible financing solutions for startups.
Loan Types: Term loans, merchant cash advances
Minimum Requirements: 500 credit score, six months in business, and $15,000 in monthly bank deposits.
10. StreetShares
Why it’s Good: StreetShares is veteran-owned and specializes in providing loans to veteran entrepreneurs but is open to all. They offer competitive rates and quick approval.
Loan Types: Term loans, lines of credit
Minimum Requirements: 600 credit score, one year in business, and $25,000 in annual revenue.
11. Fundera
Why it’s Good: Fundera serves as a marketplace that connects startups with a variety of lenders. They offer multiple types of loans and can cater to businesses with varying credit histories.
Loan Types: Term loans, SBA loans, lines of credit, and more.
Minimum Requirements: Varies depending on the specific lender and loan type.
12. Upstart
Why it’s Good: Upstart uses AI to evaluate credit risk, looking beyond just the credit score. They can be a great option for startups with limited credit history.
Loan Types: Personal loans for business use.
Minimum Requirements: 600 credit score, but they also consider education, job history, and other factors.
13. National Funding
Why it’s Good: National Funding offers bad credit business loans, making them accessible for startups with less than stellar credit histories.
Loan Types: Short-term loans, equipment financing.
Minimum Requirements: 500 credit score, one year in business, $100,000 in annual revenue.
14. QuickBridge
Why it’s Good: QuickBridge offers short-term loans with a quick application process, making them a good option for startups in need of fast, temporary capital.
Loan Types: Short-term loans.
Minimum Requirements: No minimum credit score specified, but generally need to have been in business for at least 9 months and have $200,000 in annual revenue.
15. LoanBuilder
Why it’s Good: LoanBuilder, a PayPal service, offers customizable loans with a quick and straightforward application process.
Loan Types: Customizable business loans.
Minimum Requirements: 550 credit score, nine months in business, $42,000 in annual revenue.
16. Reliant Funding
Why it’s Good: Reliant Funding offers fast approval and funding, sometimes within the same day. They offer high approval rates, making them accessible for many startups.
Loan Types: Short-term loans, merchant cash advances.
Minimum Requirements: No minimum credit score, but need at least one year in business.
17. BFS Capital
Why it’s Good: BFS Capital offers both short-term loans and merchant cash advances, providing flexibility for startups looking for short-term capital.
Loan Types: Short-term loans, merchant cash advances.
Minimum Requirements: 550 credit score, at least one year in business, $100,000 in annual revenue.
18. Kiva
Why it’s Good: Kiva specializes in microloans and caters to socially impactful businesses. Their loans are crowdfunded and come with a 0% interest rate.
Loan Types: Microloans.
Minimum Requirements: Must be a socially impactful business, no minimum credit score, but a public fundraising phase is required.
19. SmartBiz
Why it’s Good: SmartBiz specializes in SBA loans, which offer low-interest rates. They streamline the application process, making it quicker and easier than going directly through a bank.
Loan Types: SBA loans, bank term loans.
Minimum Requirements: 650 credit score, two years in business, and meet SBA loan requirements.
20. Balboa Capital
Why it’s Good: Balboa Capital offers a range of financial products, from short-term loans to equipment leasing, and has a quick application process.
Loan Types: Short-term loans, lines of credit, equipment leasing.
Minimum Requirements: 600 credit score, one year in business, $300,000 in annual revenue.
21. Nav
Why it’s Good: Nav is not just a private lender but a platform that connects startups with multiple types of funding, offering business loans and lines of credit.
Loan Types: Term loans, business credit cards, SBA loans, and more.
Minimum Requirements: Varies based on the specific loan but often requires at least six months in business and a 550 credit score.
22. CAN Capital
Why it’s Good: CAN Capital is a private lender known for its merchant cash advances, making them an option for startups with steady credit card sales.
Loan Types: Merchant cash advances.
Minimum Requirements: At least six months in business, $150,000 in annual revenue.
23. Fora Financial
Why it’s Good: As a private lender, Fora Financial offers unsecured business loans and merchant cash advances with no collateral requirements.
Loan Types: Unsecured business loans, merchant cash advances.
Minimum Requirements: Six months in business, $12,000 in monthly sales.
24. Dealstruck
Why it’s Good: Dealstruck is a private lender that offers term loans and asset-based lines of credit, focusing on growing small businesses.
Loan Types: Term loans, asset-based lines of credit.
Minimum Requirements: 600 credit score, one year in business, $150,000 in annual revenue.
25. Rapid Finance
Why it’s Good: Rapid Finance is a private lender offering a broad range of financial products, including lines of credit and merchant cash advances, with fast approval times.
Loan Types: Short-term loans, lines of credit, merchant cash advances.
Minimum Requirements: Two years in business, $5,000 in monthly revenue.
26. Lendio
Why it’s Good: Lendio operates as a marketplace to connect startups with over 75 private lenders, providing a wide range of loan options.
Loan Types: Term loans, lines of credit, SBA loans, and more.
Minimum Requirements: Varies based on the specific lender and loan type.
27. Peerform
Why it’s Good: Peerform is a peer-to-peer private lender offering personal loans that can be used for business purposes, ideal for very early-stage startups.
Loan Types: Personal loans for business use.
Minimum Requirements: 600 credit score, various other individual financial metrics considered.
28. Noble Funding
Why it’s Good: Noble Funding is a private lender specializing in asset-based loans for startups and small businesses looking to leverage their assets.
Loan Types: Asset-based loans, unsecured business loans.
Minimum Requirements: 550 credit score, six months in business.
29. Currency
Why it’s Good: Currency is a tech-focused private lender offering equipment financing, which can be crucial for startups in industries requiring substantial equipment investment.
Loan Types: Equipment financing.
Minimum Requirements: No minimum credit score but requires a minimum of $120,000 in annual revenue.
30. QuarterSpot
Why it’s Good: QuarterSpot is a private lender that offers short-term loans with repayment flexibility, suitable for startups in need of quick cash without long-term commitments.
Loan Types: Short-term loans.
Minimum Requirements: 550 credit score, one year in business, $200,000 in annual revenue.
31. One Park Financial
Why it’s Good: One Park Financial serves as a private lender that specializes in helping small businesses, including startups, secure the necessary funding.
Loan Types: Short-term loans, merchant cash advances.
Minimum Requirements: One year in business, $20,000 in monthly revenue.
32. Breakout Capital Finance
Why it’s Good: This private lender provides a “one-stop-shop” for various startup business loan options, from short-term loans to lines of credit.
Loan Types: Short-term loans, lines of credit.
Minimum Requirements: Two years in business, $100,000 annual revenue.
33. Ondeck Capital
Why it’s Good: Known for its fast approval and funding processes, Ondeck Capital is a private lender that’s an excellent option for a startup business loan if you need funds quickly.
Loan Types: Short-term loans, lines of credit.
Minimum Requirements: One year in business, $100,000 in annual revenue.
34. Clearbanc
Why it’s Good: Clearbanc offers a unique revenue-share agreement as a form of a startup business loan, which is great for businesses with fluctuating income.
Loan Types: Revenue-based financing.
Minimum Requirements: Six months in business, $10,000 in monthly revenue.
35. Credibility Capital
Why it’s Good: This private lender focuses on term loans and is known for its transparent pricing and terms, making it a reliable choice for a startup business loan.
Loan Types: Term loans.
Minimum Requirements: Two years in business, 640 credit score, $250,000 in annual revenue.
36. Fundation
Why it’s Good: Fundation offers a range of loan products and focuses on personalized service, acting as more than just a private lender but as a financial partner.
Loan Types: Term loans, lines of credit.
Minimum Requirements: Two years in business, $100,000 in annual revenue.
37. Lendr
Why it’s Good: Lendr provides quick access to funding through its cash advances, making it a solid option for startups needing immediate capital.
Loan Types: Cash advances.
Minimum Requirements: One year in business, $10,000 in monthly sales.
38. Shearwater Capital
Why it’s Good: Shearwater Capital is a private lender that offers asset-based loans, which can be ideal for startups with significant equipment or inventory.
Loan Types: Asset-based loans.
Minimum Requirements: One year in business, $200,000 in annual revenue.
39. Kapitus
Why it’s Good: Kapitus is a flexible private lender offering a broad range of startup business loan options from short-term loans to invoice financing.
Loan Types: Short-term loans, invoice financing, lines of credit.
Minimum Requirements: One year in business, $150,000 in annual revenue.
40. IOU Financial
Why it’s Good: IOU Financial is a private lender that provides quick, low-documentation loans, making the application process easier for busy startup founders.
Loan Types: Short-term loans.
Minimum Requirements: One year in business, $100,000 in annual revenue.
3 Quick Statistics Related to Private Lenders & Startups:
- In 2021, 23% of all small business loan applicants chose an online lender, compared to 20% in 2020.
- Last year, 32% of small businesses that applied for funding did so with an online lender. This small business lending statistic has grown substantially—up from just 19%—over the past three years.
- The average small business loan from alternative lenders is between $50,000-$80,000. These lenders are typically private companies that operate online.
6 Private Lender Alternatives for Startup Business Loans
While private lenders offer a compelling option for startup financing, they aren’t the only game in town. Other alternatives include:
- Venture Capital: This is an option for startups with high growth potential.
- Angel Investors: These are high-net-worth individuals who provide capital in exchange for equity or debt.
- Crowdfunding: Websites like Kickstarter and Indiegogo allow businesses to raise small amounts of money from a large number of people.
- Government Grants: Some governments offer grants to support startups, especially in certain sectors like technology and health.
- Bootstrapping: This involves using your savings or revenue to fund your business.
- Friends and Family: Often overlooked, borrowing from friends and family can be a quick and often interest-free way to secure funds.
It is clear that private lenders offer a super valuable alternative for startups that may not meet the stringent requirements of traditional banks. With their flexibility, speed, and customizable terms, private lenders can be the financial springboard that helps launch your business venture.
Just imagine – a startup’s online database breaks down overnight and they need new cloud servers, but have maxed out their credit cards. A private lender would be a savior in that situation!
Private Lenders Advice from Reddit:
Before we leave you, check out these highly informative posts from the Reddit thread on startup loans via private lenders. We have chosen the top answers here:
3 Interesting Trends in 2023 related to private lenders in the small business startup world:
- Decrease in venture debt deals: According to PitchBook, venture debt deals declined by 38% in the first half of 2023, with startups closing $6.34 billion across 931 deals, compared to $20.07 billion across 1,500 deals in the same period in 2022
- Increased demand for private credit: Despite a slowdown in M&A financings, demand for private credit is continuing to increase as a more popular source of funding for startups, according to Macquarie Group. This trend is expected to continue in 2023.
- Availability of startup loans: There are several private lenders offering loans to startups in 2023, including Lendio, BusinessLoans.com, National Business Capital, and Finance Factory, among others. These lenders offer loans or lines of credit with varying requirements, such as time in business, annual revenue, and credit score. This trend is expected to continue as startups seek alternative financing options beyond traditional bank loans.
Overall, while there may be a decrease in venture debt deals, there is still an increased demand for private credit and availability of startup loans from private lenders in 2023.