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Struggling to Get a Bank Loan for Your Small Business? Try This Flexible Financing Option Instead. Private capital is a non-traditional financing solution that offers fast access to capital, customized solutions and flexible terms.

By Joseph Camberato

Key Takeaways

  • Private credit offers small businesses fast access to capital, with significantly shorter processing times compared to traditional bank loans.
  • Non-bank lenders offer more flexible financing options and have higher approval rates, making them particularly advantageous for small and medium-sized businesses.
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Increasingly, small businesses are turning to private credit to fund business expansions or ongoing operational costs. Private credit accounted for roughly 30% of the credit market in 2021, growing from $400 billion in assets to over $1 trillion since 2012.

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

Related: How Alternative Funding Solutions Can Help Your Business Navigate The Ongoing Financial Storm

What is private credit?

The term private credit usually refers to non-bank loans issued to businesses — peer-to-peer lenders, online lenders and financing marketplaces are all examples of this. This financing option has been especially helpful for small businesses recently, considering banks aren't 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 financing to fund startup costs, a business expansion or working capital.

Benefits of private credit

Here are the biggest benefits of private credit for small businesses:

  • Fast access to 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 typically 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 the collateral requirements and repayment terms.

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

  • Custom solutions: Since non-bank lenders have experience working with small businesses, they can provide custom 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.

Related: This Non-Traditional Financing Solution Lends Money to People Rejected By Banks

How small businesses can access private credit

Here are the steps you'll take to evaluate 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 daily expenses, like payroll or inventory? Or do you want to purchase new equipment to increase your production or improve efficiency?

Evaluating your current and future lending needs will help you determine the type of financing you're 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 unsure how much money you'll need, you may want to opt for a line of credit.

Prepare the necessary documents

It's a good idea to gather the necessary paperwork before applying for private credit. The specific requirements will vary depending on your lenders, but most will want to see the following information:

  • Business information: Not all lenders require a business plan, but you'll have to provide some basic information about your business. At the very least, you'll need to provide your company's name, address and employer identification number (EIN).

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

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

  • Bank statements: You'll 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 several different lenders before selecting the one you want to go with. Applying with a minimum of three different lenders lets you compare the potential interest rates, fees and repayment terms. It also gives you more negotiation power because you're not putting yourself in a situation where you have to take the first offer that comes your way.

Of course, submitting multiple loan applications can become tedious and take up quite a bit of your time. If you need a quicker solution, consider using an online lending marketplace. When you use a lending marketplace, you'll apply once and receive offers from multiple lenders.

Related: 4 Reasons Small Businesses Need Nonbank Lenders More Than Ever

If you're looking for alternatives 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 credit, you may 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 credit for 15 years; We're already an expert in this market.

Joseph Camberato

Entrepreneur Leadership Network® Contributor

CEO of National Business Capital

Joseph Camberato is the CEO & founder of National Business Capital. It was scaled w/o private equity to become a leading SMB Fintech marketplace and offers fast, streamlined, competitive financing options to entrepreneurs. 20k+ transactions completed and $2 billion in funding secured!

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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