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The main source of income for any bank is giving out loans and collecting interests. This practice is not limited to banks anymore; someone with a large capital can also give loans and collect them with interest. Big and small businesses sometimes need cash, either to grow further or to cover up financial losses; thankfully, there is now more than one way of getting a loan. You can either get a loan from a bank or a private lender like quantumcapitalaustralia.com.au; it all depends on your choice.
There are two main types of lending money to businesses;
- Private Lending
- Traditional Lending
Private Lending:
Any financial institution does not regulate private lending and the loans can be handed out by individuals or financial firms. This type of lending is popular with real estate developers and small business owners, as it can be easily acquired. Like all the systems, this one comes with its own pros and cons.
Pros
- This loan is instantly approved and requires minimum paperwork.
- When applying for private lending, it does not ask for financial history and credit rating; instead, a loan can be taken up against any of your assets.
- Installment plans are usually customized according to the needs and situation of the loanee.
- They can provide with a quick fix for your business if it’s going through a rough patch.
- The amount of the loan is usually low, so that makes it easier when returning it.
Cons
- This loan usually has a higher interest rate than normal and will surely put a lot of people off.
- They are usually short term loans payable within 1-24 months, making it a less viable option for some businesses.
- The fee charged by lenders after the processing of the loan is high.
- There is a real danger of scams, so a little research beforehand on the person or organization handing out such loans could be useful.
Traditional Lending:
Traditional lending means taking loans from a recognized financial institution such as a bank. Traditional lending, no doubt, is a more appropriate way, but it also comes with some pros and cons.
Pros
- Banks usually offer loans at low-interest rates that remain fixed throughout their tenure.
- They have predictable monthly payments, meaning you pay fixed monthly installments.
- The installments are pre-defined and the payment schedule is not that strict.
- They are mostly long term loans, so you don’t have to worry about their immediate repayment.
- They can be applied for multiple times since it also helps increase your credit rating.
Cons
- Bank loans usually require a lot of paperwork which can be a hassle for most of the loanees.
- They also have a longer wait time because of all the verifications and legal stuff that delay its approval.
- While applying for a bank loan, one must have a strong credit rating; otherwise, it is never getting approved.
- While giving out a loan, the banks take up an asset or something valuable as collateral, commonly known as a mortgage.
Private lending might not be the safest option but it is convenient for many who need quick money.