Traditional bank loans versus non-bank lenders

What is the best way to choose a small-business loan? The first thing to consider is which lender to make an application with. Here’s an easy guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First of all, small business finance is typically a great option for business owners:

• With a clear plan for expansion or a clearly defined short-term goals
• Who will be able to pay the loan
• Who understand the terms and conditions with the loan – your adviser or broker is there to help if you have any concerns.

If you’re looking to invest in inventory, new equipment or technology as well as additional staff, training, renovation or new premises that will take your business to the next stage, then you might want to consider the pros and cons of taking on the traditional bank loan or working with a non-bank lender.

Online or bank?

Lending from banks

The reputation for a brand of established bank can be regarded as solid or safe as could the feeling of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same regulations.

The application process for bank loans can be long and complicated and require a level of paperwork which some small business owners might be limited in time to fulfill. The process may be faster in the event that the bank has digital access to your financial records - while banks aren’t generally well-known for their expertise in data-driven small business loans, their capabilities are getting better.

As is the case with all kinds of loans there is a possibility of lower interest rates could need to be considered along with characteristics of loan products in order to select the most appropriate type of loan. The lender and the loan conventional banks might have strict requirements and cumbersome application processes, and lack flexibility.

With cash flow being so vital to the survival of a lot of small businesses, the differences between a loan today that can fund inventory to sell in the next day, and the loan that is granted next month , when the seasonal demand is gone, could be the difference between making or breaking.

Online or non-bank business loans

If a good credit history and solid security are typically required for an bank loan, Non-Bank lenders can be more flexible in their approach. They also may be more flexible in structuring loans.

Non-bank lenders are typically more technologically advanced than banks, so the applications may be completed and approved swiftly, with funds being available within the next dayfollowing approval.

It is still necessary to disclose the purpose of the loan is intended for the business’s name, type of business and its history, as in the event of providing security for bigger loans, but since a complete business plan as well as a lengthy application aren’t always part of the deal, the process could be faster.

Check out these relationships: repayments and red flags

If you have a strong relationship with a bank’s management or another lender, you could discuss the lending process and their application. If not, your broker could assist you with the different lending requirements.

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

If you’re thinking about Non-Bank lenders take a look at independent reviews. If an offer appears too tempting to be real for instance, when you are pre-approved before applying, or the lender is aggressive in their approach, consider speaking to advisors or brokers and examining the details before committing.

If you’re borrowing money from a bank or Non-Bank lender, you may want to understand the terms of the loan and realistic about how you’ll be able to meet the obligations. A key consideration may be creating a set of rules for yourself - deciding whether business loans are needed to boost your business’s performance and to handle the seasonal changes in fluctuating cash flows, or to make the most of opportunities to purchase stock in huge quantities, or for everyday expenses and operational costs.