Nearly every business owner will decide at some point that they are ready to grow their business. Some of them will have the capital readily available and it will be no problem- but others don’t have the capital they need. Perhaps a loan would be a good option, but you don’t have the time to wait on a bank loan application to process. In this case, you might want to take out a private loan.

What is a Private Loan?

A private loan is a loan from a non-bank entity. It comes from those who believe that you have potential. Loans from friends, family and even angel investors fall into this category.

Loans from Family/Friends

First, let’s take a look at loans from family and friends. There are many advantages and disadvantages to taking money from your loved ones.

Advantages of Borrowing from Family/Friends

The advantages of borrowing funds from family and friends are:

Easy to access
No collateral required
Interest rate not tied to any particular index
No background check/credit check
Flexible terms

Disadvantages of Borrowing from Family/Friends

Following are a few of the disadvantages of borrowing money from friends/family:

Could strain relationship
No formal agreement in place

Investments from Angel Investors

An angel investor is someone who has some money they’re willing to provide as capital to a business, typically in exchange for equity ownership or convertible debt. There are several advantages and disadvantages to obtaining this type of capital.

Advantages of Angel Investors

Following are some of the advantages of using an angel investor to provide you with working capital.

Flexible
Can provide small amounts of capital
Knowledge/expertise
Want to keep their money local
Can be found in many places, not just in traditional lending institutions

Disadvantages of Angel Investors

On the other hand, there are a few disadvantages as well:

You are no longer in full control
Hard to find

Bottom Line

You need some working capital for your business, but you’re not sure how. Hopefully, we have been able to explain to you the differences between a private loan and angel investors. If you need some help with working capital for your business, call Northgate Capital Finance.