Entrepreneurs choose private lenders over banks when looking for financing. Here are five top reasons why private lenders are a more attractive option. These lenders offer excellent features like more personalized services, faster approval times and flexibility in the criteria they use to accept the loan.
Consider Mortgage Broker Store if you're a small business or entrepreneur looking for a private mortgage loan. They offer excellent features, such as a streamlined application process.
Introduction to Private Lenders for Entrepreneurs
Some characteristics of entrepreneurs and small businesses make a private loan better than a traditional bank loan.
- Starting a business or being a sole proprietor can mean irregular cash flow. People who run businesses in industries like holiday, retail tourism, and landscaping can experience spikes and dips in revenue. The same can be said for entrepreneurs who own consulting and freelance businesses. If those people need a loan, they’ll run into trouble with traditional institutions that rely on steady, verifiable, long-term income.
- Entrepreneurs need to act quickly when an opportunity to scale up presents itself. They might have real estate and business equity but be short on cash flow when a suitable situation arises. A bank loan carries a heavy administrative burden that takes time. Plus, these institutions emphasize your credit score. A private lender, on the other hand, emphasizes equity.
Here are other excellent reasons a small business should consider a private lender.
1. Faster Approval and Funding
Private lenders have a quicker, more streamlined approval process.
For example, a private second mortgage is an excellent choice for entrepreneurs because private lenders can adjust the term to a small business's unique situation. They focus on the equity built up in the property and the market value as opposed to a more rigid credit score. That allows an entrepreneur to get some money quickly when there's a dip in their cash flow and they're looking to fund a new project.
2. Flexible Loan Terms and Conditions
Private lenders can tailor a repayment period and rate to suit an entrepreneur's cash flow fluctuations. Traditional banks, on the other hand, have more rigid requirements.
These flexible loan terms and conditions allow a small business owner or an entrepreneur to make interest-only payments that can free up some extra cash to invest in other parts of the business.
Freeing up some money can be helpful when an entrepreneur needs more working capital for equipment upgrades, inventory, and marketing.
3. Less Stringent Credit Requirements
One big bonus of using a private lender as an entrepreneur is that their credit requirements are not as strict as those of a bank. According to Equifax, a score in the poor credit range is below 560, but a private lender will work with borrowers with bad credit.
That's because they focus on other metrics, such as the Loan-to-Value (LTV) ratio, which is defined as the percentage of the property's value owed in mortgages.
Here's an example of how this works.
A homeowner has a property worth $1 million and a first mortgage worth $500,000. They request a second mortgage of $250,000. The standard LTV for the mortgage is 75% among most private lenders. It is based on the property's appraised value.
The formula looks like this.
LTV = Total Loan Amounts / Appraised Value of the Property.
A private lender can also offer more customer service.
4. Personalized Service and Support
Another advantage for entrepreneurs is the advice and industry expertise they can get from a private lender. Dealing with a bank or a credit union is more institutional and has a more significant administrative process.
A private lender can also help borrowers ensure regulatory compliance when they take out a loan. Mortgage brokers who work with private lenders must be licensed under the Mortgage Brokerages, Lenders, and Administrators Act, 2006 (MBLAA). The Financial Services Regulatory Authority of Ontario (FSRA) regulates these brokers.
The FSRA ensures compliance with the MBLAA and adequately discloses payment schedules, fees, and interest rates.
5. Opportunity for Creative Financing Solutions
Here are some more opportunities for small businesses and entrepreneurs to take advantage of through a private second mortgage.
- The money you can get through a private second mortgage can stop a power of sale or foreclosure. It's important to keep in mind that there are business owners who use their houses or their storefronts as collateral. If they default or breach a covenant of the mortgage agreement, this money can stop either process and give them time to regroup.
- They can also use the money they get to buy out partners or other shareholders in a business and gain complete control. An entrepreneur can leverage the equity that they've built up to get the financing quickly.
- One of these private loans is also an excellent way for entrepreneurs in the hospitality and retail spaces to get some money to improve a commercial space. For example, one of these private loans could cover the cost of changing out a kitchen layout or purchasing high-quality chairs and tables.
Private lenders can help entrepreneurs with equity-based, fast, flexible loans. These allow them to upgrade current locations, get private loans to cover opportunities, prevent power of sales and even buy out business partners.
Unlocking your equity to get a private mortgage loan if you’re an entrepreneur starts when you contact Jonathan Alphonso. Call him at 416-499-2122 or email Jonathan at [email protected]. Get more information on the private loans he offers at Mortgage Brokers Store and here.