Non-bank lenders vs Typical bank loans

The decision to take a business loan for small businesses? The first step is deciding who to go with. Here’s a simple guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First , small-scale business financing usually suits business owners:

• With a clear path for development or a well-defined, short-term goals
• Who can make the repayments
• If you are aware of the terms and conditions with the loan – your broker or adviser is here to help you with any questions.

If you’re willing to invest in the inventory, new technology or equipment as well as additional staff, training as well as a renovation or new building which could help take your small business to the next level, then you might want to consider the pros and cons of taking on the traditional bank loan or dealing with an Non-Bank lender.

Are you a bank or an online lender?

Bank loans

The brand reputation of a established bank can be regarded as safe or solid, as can the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The loan application process for bank loans could be long and complex, and may require a large amount of paperwork that some small entrepreneurs may be restricted by the time they have to complete. The process could be quicker when the bank has electronic accessibility to financial records while banks aren’t usually well-known for their expertise in data-driven small-business loaning, the situation is becoming better.

Like every type of lending there is a possibility of lower interest rates could require consideration alongside the features of the loan product to determine the best type of loan and lender conventional banks could have strict guidelines and cumbersome applications processes and lack flexibility.

With cash flow being so vital to the survival of lots of small businesses, the differences between a loan today which could fund stock to sell tomorrow, and the loan that is granted next month after the season’s peak is over, can be the difference between making or breaking.

Non-bank or online business loans

A credit score that is strong and solid security is often required for the bank loan, non-bank lenders might be more flexible in their approach. They also may offer more flexibility when it comes to structuring loans.

Non-bank lenders are usually more technologically advanced than banks, which means applications can sometimes be completed and approved swiftly, with funds being available within the next day, upon approval.

There is a need to provide details of what the loan is for as well as your company’s type and its history, as being able to provide security for bigger loans, however, since a thorough business plan and lengthy applications aren’t always part of the arrangement, things can move quicker.

Check out these relationships: red flags, and repayments

If you have a strong relationship with a bank manager or another lender, you could talk to them about the process of applying for loans and obtaining approval. Otherwise, your broker can guide you through the different lending requirements.

Many of the more recent or non-bank lenders work exclusively online, some lenders like can assign a expert to guide you through the process of applying and to really understand the needs of your business.

If you’re thinking about Non-Bank lenders review their reviews by independent sources. If an offer seems too appealing to be true like getting pre-approval prior to you’ve even applied or the lender seems aggressive in their approach take a look at speaking with a broker or adviser and investigating further before signing on.

If you’re borrowing from a non-bank or bank lender, it is important to be clear about the conditions and be realistic about how you’ll be able to meet the payments. One important aspect to think about is setting ground rules for yourself - deciding whether business loans should be used to aid your business’s growth by coping with seasonal fluctuations, and fluctuating cash flows, or to make the most of opportunities to buy inventory in huge quantities, or for daily expenses and operations.