Private lending is an alternate source of funding when more traditional avenues are not available to the individual for whatever reasons.

The majority of business start ups are financed by banks and other financial institutions however there are many instances where thoroughly prepared entrepreneurs with brilliant ideas and plans are not being advanced loans by these entities due to strict procedural norms and criteria. One recourse in such situations is for the person to approach private lenders through business capital brokers. While technically venture capitalists and angel investors also qualify as private lenders, they tend to request that a certain percentage of the business be turned over to them or want seats on the governing board and may insist on having a say in the day - to - day running of the business.

The true private lender does not set such conditions while advancing loans but does require full due diligence be conducted before funding is made available. Private lending is usually restricted to specific types of businesses and individual investors seek to put in money in those projects where they have thorough knowledge - enough to be called specialists or experts. These people are prepared to take more calculated risks that a bank or other lending institution may have stomach for, because they realise that the returns can be much higher if the risks are greater. They have their own individual methods of analysing the prospects of a business proposal, based on established norms as well as their own experiences in funding such types of enterprises.