Non-bank lenders vs Standard bank loans

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

The first thing to consider is small-business financing typically suits business owners:

• With a clear path for development or a well-defined, short-term objective
• Who is able to make the repayments
• Who understand the terms and conditions with the loan – your advisor or broker is available to assist you if you have any concerns.

If you are ready to make an investment in inventory, new equipment or technology and staffing as well as a renovation or new building that will take your business to the next stage You may want to consider the pros and cons of taking on the traditional loan from a bank versus dealing with an Non-Bank lender.

Do you prefer a lender online or a bank?

Lending from banks

The brand reputation of a long-established bank is considered solid or secure, as can the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same regulations.

The loan application process for bank loans may be long and complex, and requires a lot of paperwork which some small businesses owners may be constrained by time constraints to meet. The process could be quicker when the lender has digital accessibility to financial data - even though banks aren’t known for being data-savvy in small-business lending, they are getting better.

As is the case with all types of lending it is possible that lower interest rates will need to be considered along with characteristics of loan products in order to select the best type of loan and lender - loans from traditional banks might have strict requirements and cumbersome applications processes as well as being inflexible.

With cash flow so critical to the survival of lots of small businesses, the differences between a loan that could fund stock to sell in the near future, and a loan granted in the next month when seasonal demand is gone, could be make or break.

Online or non-bank business loans

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

Non-Bank lenders are generally more digitally innovative than banks, which means applications are often accepted and processed quickly, and the funds can be made available by the next dayafter approval.

There is a need to disclose the purpose of the loan will be used for the business’s name, type of business and background, as well being able to provide security for bigger loans, however, because a comprehensive business plan and a long-winded application aren’t required in every deal, things may move faster.

Beware of relationships, red flags, and repayments

If you have a good relationship with a bank’s manager or an other lender, you may speak with them about their lending and application process. Otherwise, your broker can guide you through the requirements of different lenders.

Many newer and non-bank lenders operate exclusively online, some lenders offer a dedicated loan specialist to guide you through the process of applying and really get to know your business’s needs.

If you’re considering non-bank lenders, check out independent reviews. If you think an offer is too good to be true for instance, if you get pre-approval before applying or if the lender seems very aggressive you should talk to a broker or adviser and digging deeper before signing on.

Whether you’re borrowing from a bank or non-bank lender, you’ll need to be aware of the conditions and be realistic about how you’ll be able to meet the payments. One of the most important considerations is creating a set of rules for yourself and deciding if business loans are needed to help your business thrive in managing seasonal fluctuations, and fluctuations in cash flow, to make the most of opportunities to purchase stock in bulk, or to cover daily expenses and operations.