Private Investors and Small Business Financing

To most people the only source of loans are banks and credit unions. However the finance world has many more players than that. Real estate investors have long used private mortgage investors as a way of buying real estate. Small businesses are now learning they can also use private investors to secure the funds they need to expand their businesses.

Private investors are individuals who are willing to lend their money to other people. In return the private lender receives a higher interest rate than they would get if they just put their money in the bank. Every private lender has their own lending criteria, which is often less strenuous than the red tape of a bank. I don’t meant to imply that getting a private loan is easy or guaranteed, rather just that the terms and conditions of a private loan are far more flexible because you only have to convince one person of the merits of your business proposition.

Make sure the business deal is a good one. Don’t waste your time or theirs by approaching them without a business plan or having done your due diligence. You often only have one shot to impress a private investor so don’t go into the meeting unprepared. Be confident but take any critique they offer to heart. They may help you by giving you solid insight into why you should not go forward with the plan you presented them or at least show you where your plan is weak. Listen carefully and take notes on what is said if the person declines to invest. You can tweak your business plan for the next potential investor. Or maybe the investor will say that you should fix the plan and come see them again.

Most private investors are savvy business people themselves and will understand a good business transaction when they see it. They will also be able to see through any scam someone may try to pull. Private lenders are not going to invest in a bad deal. If your business idea has merit then chances are the private lender will discuss terms with you. You are not obligated to take the terms of their loan anymore than the lender is obligated to fund the loan. Negotiate the terms to see if you can get a lower interest rate if you think it is too high. Don’t be afraid to ask for a lower interest rate or a longer period to repay.