Did you know that lack of business credit is the primary reason why many start ups and early stage businesses find it difficult to obtain financing from a bank or other commercial lender? As a result, many small business owners turn to their personal network of relatives, friends, business associates, and other people they know to raise capital.

Take the case of Gary Goodman. After being turned away by several banks, Gary turned to his father to borrow money to launch Customer First Transmission Services, a Los Angeles-based AAMCO franchise that provides automotive parts, transmission services, and general repairs.

"The banks were reluctant to even consider my proposal," said Goodman. "The third-party financing I did manage to find carried exorbitant rates." So Goodman asked his father if he would be willing to make a loan to his business. His father agreed, but on the condition that the loan be secured by the new company's assets.

A former technology specialist, Goodman searched for more information about how to structure a private loan with his father. Gary’s search led him to CircleLending, a company that structures and manages loans that occur between relatives, friends, and other private parties.

"CircleLending was a unique fit for what we needed," added Goodman. "We were able to set up a deferred payment structure, with an interest rate that was workable both for my father and my company."

In addition to providing loan documentation and management services, CircleLending also offers their clients the ability to use a private loan to build business credit. The company’s optional Credit Builder service can be activated when the loan is being set up. If Credit Builder is activated, CircleLending will report payment history on the private loan to a leading credit reporting agency.

“Small business loans from relatives and friends are nothing new," said Craig Venezia, Vice President of Marketing at CircleLending. "As a matter of fact, over half of all small business owners raise money from relatives and friends. But only through CircleLending, can they use that private loan to build credit for their business.”

Building a positive credit history for your business is crucial. Not only will it open up doors that are currently closed in the form of bank financing, it can also allow you to establish credit lines with your suppliers, acquire corporate credit cards, etc.

“If you’re borrowing from relatives and friends anyway,” points out Venezia. “Why not make the most of it and use that loan to build business credit.”

In addition to accessing capital and building credit, there are other advantages to structuring a loan through CircleLending. For example, the cost of setting up the loan, which typically runs between $199 for an unsecured loan and $299 for a secured loan, as well as the cost of loan management (averages $9 per payment) may be tax deductible as business expenses. Furthermore, the interest paid to your private lender may be tax deductible as well.

For Gary Goodman, borrowing from his father certainly made sense. He was able to raise the capital he needed and also begin building business credit in the process. His father, on the other hand, was able to help out his son financially while feeling confident that it wouldn’t drive a wedge between the two men since the private loan was being managed by a third-party company.

Source: CircleLending, Inc. is a financial services company uniquely serving the needs of the interpersonal lending market in the United States. The company facilitates financial transactions between relatives, friends and private parties by providing an end-to-end solution for reducing financial and emotional risk. CircleLending provides non-traditional access to affordable credit and solutions to ensure financial success. To get your copy of Circlelending's FREE Small Business Private Loan Guide click here now!