Most business owners shopping for commercial real estate financing end up weighing two main options: traditional banks versus private lenders. Each has its pros and cons, and what works best really comes down to your particular circumstances.
Banks are usually where people start their search, and for good reason. You won’t find better interest rates anywhere else, and they’ll let you stretch payments over twenty or thirty years. That long timeline keeps your monthly bills manageable and predictable. Working with a bank also builds up your business credit, which comes in handy later when you need more financing.
Here’s the rub, though – banks are notoriously picky. About 72% of small business owners get turned down when they apply for loans. Banks want to see stellar credit and plenty of collateral, and they’ll often require you to personally guarantee the loan. Even if you check all their boxes, expect to wait months while they pick apart every detail of your finances and business.
Private lenders have become more popular lately because they operate under different rules. They’re willing to work with people that banks won’t touch, and you can sometimes get funded in days instead of months. If you have less-than-perfect credit or are running a newer business, consider these options. Private lenders might still say yes where banks automatically say no.
But here’s the trade-off – all that flexibility costs you. Private lenders charge much steeper interest rates, and most want their money back pretty quickly, sometimes within six months to a year. That can put significant pressure on your cash flow if you’re not prepared. What makes sense for you depends on where you’re at right now. Strong credit, steady income, and patience for paperwork? A business loan from a bank will save you significant money over time. Need to move fast, have credit issues, or running a startup? You’ll have to accept higher rates and go with a private lender.
If you are starting a new business, please give us a call at (212) 619-1500 for a free consultation.