Typical bank loans vs non-bank lenders

How do you choose a small business loan? The first thing to consider is which lender to apply with. Here’s an easy guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First , small-scale business financing is usually a good option for business owners:

• With a clear plan for growth or a well-defined short-term objective
• Who will be able to pay the loan
• Know the terms and conditions associated with the loan. Your broker or adviser is here to assist you with any concerns.

If you’re willing to invest in inventory, new equipment or technology and staffing or renovation, or even a new location that could take your small company to the next level You may want to consider the advantages and disadvantages of taking on the traditional loan from a bank versus using a non-bank lender.

Online or bank?

Lending from banks

The reputation of a long-established bank can be considered safe or solid in 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 loan application process for bank loans can sometimes be long and complicated and will require a certain amount of paperwork that some small entrepreneurs may be restricted by time constraints to meet. The process can be speedier when the bank has electronic acces to your bank records - while banks aren’t usually considered to be data-savvy when it comes to small-business loans, their capabilities are getting better.

As is the case with all kinds of loans it is possible that lower interest rates could need to be considered along with the features of the loan product to decide on the most suitable type of loan. The lender and the loan conventional banks are likely to have strict criteria and cumbersome applications processes and lack flexibility.

With cash flow being so vital to the survival of many small-sized businesses, the distinction between a loan granted today that could fund stock to sell tomorrow, and an offer for a loan next month when the season’s peak is over, can be the difference between making or breaking.

Online or non-bank business loans

A credit score that is strong and solid security are often a must-have for loans from banks, Non-Bank lenders might be more flexible in their approach. They can also tend to have more flexibility when it comes to structuring loans.

Non-bank lenders are usually more technologically advanced than banks. This means applications are often processed and approved quickly with funds made available within the next day, upon approval.

It is still necessary to explain what the loan will be used for along with your business’s nature and history, as well possibly providing security for loans that are larger, however, since a thorough business plan and a long-winded application aren’t required in every deal, the process could be quicker.

Attention: Relationships, red flags and payments

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

Although many of the newer non-bank lenders operate exclusively on the internet, some lenders have a dedicated loan advisor to help you through the loan application process and really get to know your business needs.

If you’re considering non-bank lenders look into independent reviews. If an offer seems too good to be true like if you get pre-approval before you’ve even submitted an application or if the lender seems aggressive in their approach you should talk to an adviser or broker and examining the details before committing.

When borrowing from a bank or Non-Bank lender, it is important to be aware of the terms and whether you’re able to make the repayments. One of the most important considerations is creating a set of rules for yourself when deciding whether you should use business loans to help your business thrive in managing seasonal fluctuations, and fluctuations in cash flow, to make the most of opportunities to purchase stock in huge quantities, or for daily expenses and operations.