Non-bank lenders vs Traditional bank loans

How do you choose a small business loan? The first decision is who to make an application with. Here’s an easy guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

First up, small business financing usually suits business owners:

• With a clearly defined plan of growth or a well-defined time-frame
• Who will be able to pay the loan
• You are aware of the terms and conditions associated with the loan – your broker or adviser is here to assist you with any questions.

If you are ready to make an investment in the inventory, new equipment or technology and staffing and renovations or even new premises that can take your company to the next level and beyond, then you should to weigh up the pros and cons of taking out traditional bank loans versus working with a non-bank lender.

Bank or online lender?

Lending from banks

The reputation of a long-established bank is considered solid or safe in the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same regulations.

The application process for bank loans may be long and complicated and requires a lot of paperwork which some small businesses owners may be constrained by time to meet. The process may be faster when the bank has electronic ability to access your personal financial records - while banks aren’t generally recognized for their data-savvy approach to small business credit, but they’re getting better.

As is the case with all types of lending the chance of lower interest rates could require consideration alongside attributes of the loan product in order to choose the best type of loan. Likewise, lenders conventional banks might have strict requirements and cumbersome application processes, and may not be flexible.

With cash flow so critical to the survival of many small businesses, the differences between a loan today which can be used to purchase stock tomorrow, and the loan that is granted in the next month when season’s peak is over, can be the difference that makes or breaks a business.

Non-bank or online business loans

Where a strong credit history and solid security are typically essential for a bank loan, Non-Bank lenders can be more flexible with their approach. They can also tend to offer more flexibility when it comes to structuring loans.

Non-Bank lenders are often more digitally innovative than banks. This means applications can sometimes be processed and approved in a short time, with funds made available within the next working day, following approval.

There is a need to give details about what the loan will be used for as well as your company’s type and history, as well in the event of providing security for loans that are larger, but since a complete business plan and cumbersome applications aren’t required in every deal, things may move faster.

Attention: Relationships, repayments , and red flags

If you have a strong relationship with a bank’s managing director or an additional lender, you might speak with them about their application and lending process. In other cases, your broker will assist you in understanding the different lending requirements.

Many of the more recent or non-bank lenders work exclusively on the internet, some lenders can assign a expert to guide you through the loan application process and really get to know the needs of your business.

If you’re considering non-bank lenders look into independent reviews. If an offer seems too appealing to be true, such as when you are pre-approved before applying or if the lender appears very aggressive take a look at speaking with an adviser or broker and digging deeper before signing up.

Whether you’re borrowing from a bank or Non-Bank lender, it is important to understand the conditions and be realistic about whether you can meet the payments. A key consideration may be setting the ground rules for your business - deciding whether business loans are needed to support your business’s success by coping with seasonal ups and downs and fluctuating cash flows, or to benefit from opportunities to buy inventory in massive quantities, or to pay for daily expenses and operations.