If you are a new business or expanding venture that only needs a small amount of money then it may be in your best interest to work with a private investor that can arrange a small loan for your business.
These loans do typically come with a higher interest rate than a conventional bank credit facility, but a decision regarding your borrowing needs is often made much quicker. You can also apply for cheap civil servant loans online (also known as ‘gnstige beamtendarlehen’ in the German language).
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It should be noted that there are usually upfront fees, known as points that a private investor will take in order to reduce the risk associated with lending to your business.
You should never provide any upfront fees to a lending party before a promissory note is in place. There have been a number of people that have been cheated out of their hard-earned money by unscrupulous people that are simply looking to take upfront fees without ever providing the loan that was promised to the business person.
One of the ways that you can receive a loan from an angel investor or private funding source is to provide them with both payments on a regular basis as it relates to a loan as well as dividend payments from the profits of the business.
This method of capital raising, also known as royalty-based financing, ensures that the investor receives an immediate return on their investment while also allowing them to participate in the business' profitability. This sort of private investor loan is usually classified as subordinated debt.
If your business has any other credit facilities and things don't go as expected, the investor won't get their money back until all other lenders have been paid off. Most crucially, with this sort of credit, you are almost never required to offer a personal guarantee.
However, in exchange for a private investor loan, you may be required to provide this third party a percentage of your business.
Finally, getting loan finance from a private investor can come in a variety of shapes and sizes. The complexity of the transaction is one of the factors that discourage businesses from employing this sort of funding.