Non-bank lenders vs Typical bank loans

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

First up, small business financing typically suits business owners:

• With a clear path for expansion or a clearly defined time-frame
• Who is able make the payments
• Who understand the terms and terms associated with the loan – your broker or adviser is here to help you with any questions.

If you’re looking to make an investment in inventory, brand new technology or equipment as well as additional staff, training, renovation or new premises that can take your company to the next level and beyond, then you should take a look at the advantages and disadvantages of taking out a traditional bank loan versus dealing with an Non-Bank lender.

Are you a bank or an online lender?

Bank loans

The brand reputation of a long-established bank is considered solid and secure 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 for bank loans could be complex and lengthy, and may require a large amount of paperwork that small business owners might be limited in time to fulfill. The process could be quicker when the lender has digital accessibility to financial records even though banks aren’t considered to be data-savvy when it comes to small business loans, their capabilities are getting better.

As with every type of lending, the possibility of lower interest rates could require consideration alongside characteristics of loan products to choose the best type of loan. The lender and the loan traditional bank loans may have strict criteria as well as lengthy and complicated application processes and lack flexibility.

Since cash flow is crucial to the survival of lots of small-sized businesses, the distinction between a loan today which could be used to fund the sale of stock tomorrow, and an offer for a loan next month when the season’s demand has ended can be make or break.

Business online or non-bank loans

When a solid credit history and solid security are usually necessary for obtaining the bank loan, non-bank lenders might be more flexible in their approach. They can also tend to be more flexible in structuring loans.

Non-Bank lenders are often more innovative in their digital technology than banks, meaning applications are often completed and approved swiftly, with funds being available within the next day, upon approval.

It is still necessary to explain what the loan is for as well as your company’s type and background, as well possibly providing security for larger loans, however, since a thorough business plan and lengthy applications aren’t always part of the arrangement, things can move faster.

Beware of relationships, repayments and red flags

If you’ve established a solid relationship with a bank manager or another lender, you can speak with them about the process of applying for loans and obtaining approval. If not, your broker could assist you with the different requirements of lenders.

Many newer and non-bank lenders work exclusively on the internet, some lenders can provide a dedicated specialist in loan to guide you through the loan application process and truly get to know the requirements of your company.

If you’re considering non-bank lenders, check out independent reviews. If an offer seems too tempting to be real or if you get pre-approval before you’ve even submitted an application or the lender seems aggressive in their approach take a look at speaking with advisors or brokers and looking into the matter before signing on.

If you’re borrowing money from a bank or a Non-Bank lender, you’ll want to know the terms and realistic about whether you’re able to make the repayments. One of the most important considerations is making a list of the rules you’ll need to follow - deciding whether you should use business loans to support your business’s success and to handle seasonal fluctuations and fluctuating cash flows, or to take advantage of opportunities to purchase inventory in bulk, or to cover day-today operations and costs.