The difference between a bank loan and a lender loan
Banks and lenders provide you with similar services. Both provide you with a loan which has to be repaid within a specified time limit. Many business owners tend to prefer bank loans to loans from private lenders. Normally, banks interest rates could be lower than the interest rates for a loan from a private lender. The reason behind this is that banks have a strong financial base than lenders. Banks have easy access to money being saved by their clients, thus, making giving out unsecured personal loans with terrible credit much easier.
Another explanation to why banks offer loans at a lower interest rate is because they can easily access the federal funds. Currently, the federal funds have cheaper rates which go at around 0.25 percent.
On the other hand, private lenders have to acquire funds from investors that are looking for decent returns. The lenders may also have to get funds from other financial institutions such as banks who lend them money at much higher interest rates than it costs them to acquire that money. Hence, explains why loans from private lenders have a higher interest compared to loans from banks.
Banks rarely give out loans at lower rates despite the fact that they are capable of doing so. The reason behind this could be:
• Because their main competitors who are the private lenders have to charge higher rates. Banks then charges their rates just below what is being charged by the private lenders and still beat the competition.
• Banks have other plenty of ways to make money. Thus, funding your business loan is not a big priority to them since they have other avenues to make profits. The avenues may include the banking fees they charge their clients or profits acquired from investments in stocks and bonds.
• Banks also have strict rules that prevent them from lending to new or small growing businesses. The restrictions are meant to protect their client’s money and at the same time tie their hands when making loans.
Private lenders, on the contrary, do not have those restrictions, neither do they have other avenues of making money. Businesses that do not qualify for a bank loan are advised to grow their activities until when they are capable of qualifying for a bank loan. Meanwhile, if your business cannot access a bank loan, then go for a private lender loan since it is only temporary. Private loans can help you a great deal to develop your business and make it qualify for a bank funding.