Private funding (also known as a Private Lender) is the means of gaining financial backing through a private institution or another group of private investors whom are not part of a bank or other major financial institution. More often than not, the money from private funding comes from the private lenders own pockets, which can at times be from their own equity loans through major financial institutions.
There are also times where private funding can also come from family or friends who already have the financial backing to invest in your endeavor.
Who needs private funding?
Generally people who choose the route of private funding are individuals who have been rejected by major financial lenders because of a high risk profile or do not meet other criteria to gain a loan.
Does it cost more?
In most cases the money loaned through private funding comes at a higher interest rate based on the risk assessment of the individual receiving the loan. This is not always the case depending on the loan duration and possible past business with the same private lender. In most cases private lenders will also use equity in assets (same as major banks) as collateral for loans if/when a company is forced into liquidation.