Traditional bank loans versus non-bank lenders

The decision to take a business loan for small businesses? The first step is deciding who to make an application with. This is a quick guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First , small-scale business finance is typically a great option for business owners:

• With a clear roadmap 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 advisor or broker is available to help you with any questions.

If you’re looking to invest in inventory, brand new equipment or technology as well as additional staff, training and renovations or even new premises that can take your enterprise to the next step If so, you may want to consider the pros and cons of taking on a traditional bank loan versus working with a non-bank lender.

Online or bank?

Bank loans

The reputation for a brand of long-standing bank can be seen as solid or secure, as can the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The process of applying for bank loans can be complex and lengthy, and may require a large amount of paperwork that some smaller business owners might be limited by the time they have to complete. The process can be speedier in the event that the bank has digital access to your financial data - while banks aren’t generally considered to be data-savvy when it comes to small-business loaning, the situation is becoming better.

Like any type of loan there is a possibility of lower interest rates will be considered in conjunction with loan product features to determine the best type of loan. As for the lender - loans from traditional banks are likely to have strict criteria and lengthy application procedures, as well as being inflexible.

With cash flow so critical to the survival of many small enterprises, the gap between a loan that could fund stock to sell tomorrow, or the loan that is granted next month when the seasonal demand is gone, could be the difference between a successful or unsuccessful business.

Business online or non-bank loans

Where a strong credit history and solid security are typically a must-have for an bank loan, Non-Bank lenders could be more flexible with their approach. They can also tend to offer more flexibility in the way they structure loans.

Non-Bank lenders are often more technologically advanced than banks. This means applications are often completed and approved swiftly, and the funds can be made available by the next day, upon approval.

It is still necessary to explain what the loan is for along with your business’s nature and background, as well as potentially providing security for larger loans, but because a comprehensive business plan and cumbersome applications aren’t required in every arrangement, things can move more quickly.

Heads up: relationships, red flags, and repayments

If you’re in a long-standing relationship with a bank’s management or an other lender, you may speak with them about the lending process and their application. If not, your broker could guide you through the various requirements of lenders.

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

If you’re thinking of a loan from a Non-Bank lender review their reviews by independent sources. If the offer you’re considering seems too appealing to be true for instance, if you get pre-approval before you’ve even applied or if the lender appears very aggressive think about speaking with advisors or brokers and looking into the matter before committing.

When borrowing from a bank or non-bank lender, it is important to know the terms of the loan and realistic about whether you’ll be able meet the obligations. One important aspect to think about is setting ground rules for yourself - deciding whether business loans are needed to aid your business’s growth and to handle seasonal fluctuations, and fluctuations in cash flow, or to take advantage of opportunities to purchase inventory in bulk, or to cover daily expenses and operations.