Where Does the Money For a Business Loan Come From?
Chances are you helping to finance a business loan already and you just don’t know it. This is because one of the sources for borrowed money is checking and savings account. Ever wonder why you get more interest from savings than checking? This is because the bank wants you to keep as much money with them as possible. Since savings accounts tend to collect more money, and keep money in them for longer, they pay interest. They in turn give this money out to borrowers and charge more interest.
This is how most banks make their money. In fact, it used to be considered usury to do this at all. How can it be fair that someone can make money by simply borrowing it from one person and providing it to someone else? But now we don’t seem to have any problem with this concept and it is common practice for banks, credit unions and other investment companies.
Private investment firms are also a strong source of funding for all types of business loan. Typically these companies are much more specialized and individual than a bank. They are going to lend or not lend based on metrics that apply to your industry, and they will look at the overall healthiness and competitiveness of your company and not just on a series of reports. This can be good or bad depending on how you fair in your industry.
But, if you perhaps do not have a lot of traditional credit built up, this can be a superb way to get funding for a company that is healthy and can be expected to proceed to make more money in the future.