The pros of private loans versus standard loans from financial institutions include minimal paperwork, no requirement for collateral, lower interest rates, no credit check and flexible terms. In many cases, relatives, friends, colleagues or private investors who loan money are open to changing terms if the borrower's life situation changes.
For many people, private loans are simply hassle-free. In most cases, they do not require multiple phone calls and meetings with the prospective lender as is often required when applying for a loan through a bank or credit union.
Small business owners often pursue private loans because they are denied loans through traditional lending sources. Many bank loan officers determine small businesses are too risky to lend to and deny applications out of the gate. It is generally easier to convince a relative or friend that a small business has a good chance of growing financially than to convince a bank of the same thing.
Private investors, often known as angel investors, are also typically more flexible in their terms than traditional lenders. They are generally more interested in hearing about a loan applicant's personal, professional and academic history than in credit scores. Many make their decisions after having one-on-one conversations with a loan applicant and doing a simple background check.