Traditional bank loans vs non-bank lenders

What is the best way to choose a small-business loan? The first step is deciding who to make an application with. This is a quick guide to the pros and cons of traditional lenders and Non-Bank lenders.

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

• With a clear roadmap for expansion or a clearly defined time-frame
• Who is able to make the repayments
• You are aware of the terms and terms associated with the loan – your broker or adviser is here to help you with any concerns.

If you’re ready to make an investment in the inventory, new technology or equipment or staffing, additional training as well as a renovation or new building that can take your business to the next stage, then you might want to weigh up the pros and cons of taking on a traditional bank loan versus dealing with an Non-Bank lender.

Are you a bank or an online lender?

Credit from banks

The brand reputation of a established bank can be regarded as solid or secure and can also give a sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The loan application process for bank loans could be long and complicated and may require a large amount of paperwork that some smaller business owners are limited in time to fulfill. The process may be faster when the lender has digital acces to your bank records - even though banks aren’t known for being data-savvy in small-business credit, but they’re becoming better.

Similar to any type of loan there is a possibility of lower interest rates might require consideration alongside the features of the loan product to decide on the most appropriate kind of loan. The lender and the loan conventional banks are likely to have strict criteria and cumbersome application processes, as well as being inflexible.

Since cash flow is crucial to the survival of lots of small businesses, the differences between a loan today which could be used to fund the sale of stock in the next day, and the loan that is granted in the next month when seasonal demand is gone, could be the difference between a successful or unsuccessful business.

Online or non-bank business loans

If a good credit history and solid security is often a must-have for loans from banks, Non-Bank lenders can be more flexible with their approach. They can also tend to have greater flexibility in the way they structure loans.

Non-Bank lenders are often more technologically advanced than banks, so applications can sometimes be processed and approved in a short time, and funds are available within the next dayfollowing approval.

You’ll usually still need to provide details of what the loan is for, your business type and its history, as in the event of providing the security required for larger loans but because a comprehensive business plan and cumbersome applications aren’t always part of the deal, the process could be faster.

Beware of relationships, repayments , and red flags

If you’ve established a solid relationship with a bank’s management or another lender, you can contact them regarding their lending and application process. In other cases, your broker will help you navigate the various requirements of lenders.

Although many of the newer non-bank lenders are exclusively on the internet, some lenders can assign a specialist in loan to guide you through the process of applying and truly get to know the needs of your business.

If you’re considering non-bank lenders, check out independent reviews. If an offer seems too appealing to be true, such as getting pre-approval prior to applying, or the lender is extremely aggressive in their approach take a look at speaking with advisors or brokers and looking into the matter before signing up.

When borrowing from a bank or a Non-Bank lender, you’ll need to know the conditions and be realistic about whether you’ll be able meet the loan repayments. One important aspect to think about is making a list of the rules you’ll need to follow and deciding if business loans are needed to help your business thrive and to handle seasonal fluctuations and cash flow fluctuations, to profit from opportunities to purchase inventory in large quantities, or to fund daily expenses and operations.