Today, businesses have access to more funding sources than ever before. Whether you’re launching a new venture, acquiring commercial property, or expanding operations, the right financing structure can make all the difference.
Two primary categories dominate the lending landscape: private credit and traditional lending. While both offer essential capital solutions, they differ significantly in structure, accessibility, cost, and flexibility. Understanding these distinctions is crucial when evaluating financing options that align with your business goals.
What Is Private Credit?
Private credit refers to non-bank, institutional lending—typically provided by private equity firms, hedge funds, direct lending platforms, and specialty finance companies. These loans are not funded or backed by traditional banks and generally fall outside the scope of federal banking regulations.
This growing segment of the financial world has surged in popularity, especially in times of economic uncertainty, where traditional bank credit becomes more difficult to access.
Advantages of Private Credit:
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Flexible Structures
Private lenders can tailor loans to match the needs of unique or complex business models. These may include interest-only terms, revenue-based repayment schedules, or collateral outside standard banking norms. -
Faster Turnaround
With fewer regulatory hurdles and a more streamlined review process, private credit providers can often underwrite and fund loans much more quickly than banks. -
Willingness to Finance Unconventional Deals
Whether it’s funding a turnaround project, a real estate development in early phases, or a business acquisition with limited historical cash flow, private credit lenders are often more risk-tolerant.
Drawbacks of Private Credit:
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Higher Interest Rates
Due to the increased risk, private lenders typically charge more than banks. Rates can range from high single digits to mid-teens, depending on the deal structure. -
Shorter Loan Terms
Many private loans are structured for 12–36 months, designed as interim or bridge solutions. -
Less Oversight and Protection
The lack of regulatory oversight may expose borrowers to less transparency or aggressive terms if they don’t work with reputable lenders.
What Is Traditional Lending?
Traditional lending is provided by regulated financial institutions such as commercial banks and credit unions. These lenders follow strict underwriting standards and often require borrowers to meet rigid criteria regarding credit scores, debt service coverage ratios (DSCR), collateral, and operating history.
Advantages of Traditional Lending:
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Lower Interest Rates
Thanks to regulatory protections and access to low-cost capital, banks can offer some of the most competitive rates on the market. -
Longer Terms
Bank loans often offer repayment periods of 5, 10, or even 25 years—especially for SBA-backed or commercial real estate loans. -
Institutional Support
Borrowers may benefit from a long-term banking relationship that provides access to other services and financial products.
Limitations of Traditional Lending:
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Slower Process
Loan approvals can take weeks or months, especially for larger or more complex requests. -
Rigid Requirements
Traditional lenders require excellent credit, clean financials, and standard collateral. Startups, distressed businesses, or borrowers with limited liquidity may not qualify. -
Less Flexible Structuring
Most bank loans are “one-size-fits-all” and may not accommodate non-traditional business models.
Private Credit vs. Traditional Lending: Which Is Right for Your Business?
The best lending solution depends on several factors, including the urgency of funding, credit profile, collateral availability, and the specific use of funds.
| Criteria | Private Credit | Traditional Lending |
|---|---|---|
| Approval Speed | Fast (days to weeks) | Slower (weeks to months) |
| Flexibility | High | Low to moderate |
| Cost | Higher | Lower |
| Credit Requirements | Flexible | Strict |
| Ideal For | Bridge loans, turnarounds, unique projects | Strong borrowers, long-term financing |
How Tikal Funding Can Help
At Tikal Funding, LLC, we work with a wide range of lending partners—from traditional banks to private credit firms—to match our clients with financing that suits their business objectives and timeline. Whether you’re looking for the stability of a long-term loan or the flexibility of a short-term private facility, we help you understand the pros and cons of each and make informed, strategic decisions.
Looking to explore your financing options? Let’s talk. Our team is ready to guide you through today’s lending landscape and help you secure the capital you need—on your terms.
