In the wake of the financial crisis of 2007–08, the availability of traditional types of small business financing dramatically decreased.
[6] The duration of a business loan is variable and could range from one week to five or more years, and speed of access to funds will depend on the lender's internal processes.
Private lenders are swift in turnaround times and can in many cases settle funds on the same day as the application, whereas traditional big banks can take weeks or months.
This isn't a loan, instead, the business owner forms a C Corporation, which sponsors a profit-sharing retirement plan.
[8] The IRS has clearly stated that the use of retirement funds to finance a small business is not “per se” non-compliant.
Oftentimes, start-up companies and businesses operating for less than a year do not have collateral and private money lenders or angel investors are a better option.
Private money lenders and angel investors are willing to take more risk than banks recognizing the potential upside.
Private lenders can also reach a decision faster with approvals only going through one tier rather than being overlooked by many levels of management.
[10] These lenders use alternative means of "security", and advanced algorithms to offer niche lending products that are designed for specific situations.
The majority of the lending decision happens off the back of transaction history and requires no formal collateral or security.
The borrower pays back a portion of their income per month, or week, depending on the terms of their loan.