Public vs. Private Small Business Startup Loans -- Which is Better?

Small business startup loans can be crucial for the success of new and small businesses. If you are just starting in your business, you will need money to expand your operation and effectively reach your target market. On top of that, you will need some help paying the bills and other fees that normally come with the business. Lenders from both public and private sectors offer loans for startup businesses. All you have to do is decide which is better between public and private small business loans.

Public Small Business Startup Loans

One of the main advantages of public loans is the fact that they can be offered at low interest rates. Government agencies that offer small business startup loans typically compute their interest based on the 91-day T-bill rates. T-bill rates are usually lower than other forms of rate indicators like LIBOR, from which private loan rates are measured. Besides, public loan facilities are not aimed at earning huge interest income. Rather, they are the offshoot of the federal or your state government’s effort in providing affordable loans to deserving businesses.

Next, government agencies are quick to decide whether they will grant your loan or not. Take the case of the US Small Business Administration, or SBA, which processes loan applications within 3 to 5 days.

Still, there are some drawbacks to public business loans. For one, you cannot write off your loan from the government of the United States. In fact, even if you declare bankruptcy, you still have to prioritize the payment of your public loans.

Private Small Business Startup Loans

If there is one thing that makes private loans better than public ones, it is flexibility. You can always work with your lender to come up with an agreed term that will be favorable for both you and the lender. As private lenders are smaller than banks and other financial institutions, they also do not require a detailed loan application process. In fact, many private lenders for startup businesses have a less rigid set of standards for granting loans as compared to big investment houses.

Besides, private loans are always available even if all your possible sources for loans have denied your application. Even if you do not have a security or collateral to back your loan, you have a good chance of getting a private loan.

Nevertheless, if you are looking for a type of business loan that charges a minimal interest rate, then private loan is not the right one for you. More often than not, private lenders are in the business of earning money from interests on the loan they extend to borrowers. Typically, the fees and interest involved in this type of loan can be a bit excessive.

In the end, the question on which is better between private and public business loans can best be answered by choosing the one that best fits your business requirements and ability to pay. Always remember that as a startup business, you need all the money you can get. Whether you are approved for a public or private loan, all that matters is that you are able to boost your business and repay the amount of the loan according to the agreed terms.