Key Components

• Private Funding: Capital comes from private individuals, organizations, or institutions rather than public markets or the government.
• Secured: The loan or investment is "secured" by an asset, such as cash, real estate, equipment, or inventory, which acts as collateral.
• Collateral: The borrower pledges a valuable asset to the lender, which the lender can take possession of if the borrower fails to repay the loan.

How it Works

• Borrower Pledges Collateral: A business or individual seeking funding offers a valuable asset as security for the loan.
• Lender Provides Capital: The private lender provides the necessary capital to the borrower.
• Repayment or Seizure: 1. If the borrower repays the loan as agreed, the collateral is released.
  2. If the borrower defaults, the lender can take ownership of the collateral.
• Recovery: The lender may then auction the seized asset to recoup the funds they originally lent.

Examples of Collateral

• Real estate
• Business machinery and equipment
• Inventory
• Accounts receivable
• Patents, copyrights, and trademarks
• Life insurance policies

Secured Private Funding Benefits

• Lower Risk for Lenders: The collateral reduces the risk for the private lender.
• Potentially Lower Interest Rates: Because of the reduced risk, lenders may offer lower interest rates for secured loans compared to unsecured loans.
• Access to Larger Amounts: Lenders are often willing to provide larger amounts of funding when the loan is secured.