When To Use Private Lending / Non Bank Lending
There is very little understanding in the market as to what constitutes private lending and worse yet, when it should be used. We help define what it is and when it should be used.
What is it?
Private lending covers a broad range of funding solutions. It is lending that typically occurs outside of traditional bank funding and large financial institutions. It is a market where financial companies that are either self-funded or investor funded, provide financial products to other commercial ventures in need of capital.
It is a critical component of the entire financial system, as it injects market liquidity when traditional institutions cannot. This in turns ensures that the entire system is able to function, and ensures players that can not get access to traditional sources of funding, are able to do so in the private market.
The beauty of private lending is that it can be tailored to the specific situation of the client and more importantly can take various forms of security. This in turn means businesses are able to gain credit to grow or transform.
When should it be used?
Generally speaking private lending deals take on more risk than a bank and they can deliver solutions quicker than banks, consequently they are priced higher than bank loans. The higher pricing is not necessarily an issue providing the return on capital or inconvenience solved by the funding solution is greater than the cost!
Fundamentally speaking there are seven main scenarios when businesses should consider using private lending.
- When a business does not meet the prerequisites to borrow from a bank.
- When a business requires funds urgently, without all the preapprovals of a bank.
- When a business has a tax debt and is unable to borrow from a bank.
- When a business already has bank funding but wishes to complement its funding pool with additional sources of private lending.
- When private lending is used as a bridging solution between bank facilities or short falls.
- When the inconvenience solved by private lending is greater than its cost. Typically, a private lending solution is delivered faster than traditional bank funding, which means businesses can take advantage of key opportunities, that they may miss due to banks being slow.
- When a long-term relationship with a private funder ensures easy access to funds at a slightly higher cost than bank funding, without all the bank prerequisites.
The success of the private lending market fundamentally comes down to matching the right lenders with the right business types for their specific need of capital. Ultimately what causes failures in this market, is when this goes wrong.
Our success as a bespoke leading private lender in Melbourne is that we are able to tailor client solutions, with our respective investor base to ensure coalignment.