Seeking Private Funding for the Business? Here are Important Things to Know

Private funding is the best way of raising money but also entails high-risk under it.
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • Oct 25,2018
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  • 10 Mins Read

Funding is the most essential source to uphold a business. Presently, there are varied kinds of options available to the companies, which are seeking loans, concerning their loan requirements. The funding is broadly divided into two categories that are, public funding and private funding.  Public funding denotes sources or funds are lent by state or government to the general masses whilst the private funding comprises of various minor and major sources who endow money to the entrepreneurs namely, venture capitalists, closed kin, angel investors and other private lenders.

Comparing Both the Funding Options

Both the type of funding is effectual in raising a business in its own manner. However, both of them do not fit each and every business. There are a set of regulations that govern funding under public funds. Owing to which, it becomes a dangling situation for loan seekers to acquire loans from the banks. Relatively, private funding is not managed by any governing body, except in case of lending institutions. Hence, private funding is a viable option for budding entrepreneurs and even, existing businesses to get off the ground.      

Private Funding- a Feasible Lending Option

Other than funds, private funding entails other things too such as mentoring and expertise in the particular field. These perks come alongside the private funding option which, in turn, facilitates making an organization successful. If right lenders such as angel investors and venture capitalists are chosen then any company can attain these benefits.

Despite the appealing benefits of private funding, the private funding has setbacks also, which are - increase interest rates of the loan, difficult payment plans and severity in non-payment of loans. These disadvantages may decrease the reliability of this loan type; however, it is an easier credit option for small businesses who fail to clear bank criteria to avail loans. Private funding helps such businesses to enter the industry and make their own mark.    

Learn Pros and Cons of Availing Private Funding

Primarily, private funding renders quicker funds and leniency in loan availability. In comparison to this, banks have a strict guideline wherein it gives out a loan to a few selected enterprises. Due to the implementation of such conditionals, it becomes difficult to seek public funds for businesses. So, private funding comes as an anchor to support small businesses.

This mainstay, however, has some defects which could unstable the lent-organization in the long course. The loans that are borrowed by private lenders have additional charges, hidden costs and distinct rate structure, as a result, it is recommended to thoroughly read the loan agreement before signing it. Furthermore, if a borrower fails to repay the loan in the due period then he is entitled as a defaulter and thus, has to pay additional cost besides interested-loan amounts such as attorney’s fee, collection cost and other relatable amounts.

This kind of loan agreements is mainly present if an organization seeks a loan from angel investors or through Venture Capital.

The detailed information would help loan seekers to distinguish the loan options which are viable and less risky for the business.     

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