Non-bank lenders vs Traditional bank loans

How do you choose a small business loan? First, you must decide who to approach. Here’s a simple guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

First , small-scale business financing usually suits business owners:

• With a clear plan for growth or a well-defined short-term goals
• Who is able to make the repayments
• You are aware of the terms and conditions that come with the loan – your adviser or broker is there to help if you have any questions.

If you’re willing to invest in inventory, new technology or equipment and staffing and renovations or even new premises which could help take your small business to the next stage, then you might want take a look at the pros and cons of taking on a traditional bank loan versus working with a non-bank lender.

Are you a bank or an online lender?

Credit from banks

The brand reputation of a long-established bank is considered solid and secure as could the feeling of security. New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The application for bank loans could be long and complex, and may require a large amount of paperwork that some smaller businesses owners may be constrained by time to meet. The process can be speedier when the lender has digital ability to access your personal financial records while banks aren’t usually recognized for their data-savvy approach to small business loans, their capabilities are getting better.

As is the case with any type of loan, the 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. Likewise, lenders - loans from traditional banks may have strict criteria and lengthy application procedures, and lack flexibility.

Since cash flow is crucial to the survival of lots of small businesses, the difference between a loan today that could fund stock to sell in the next day, and the loan that is granted next month after the season’s peak is over, can be make or break.

Non-bank or online business loans

If a good credit history and solid security are often necessary for obtaining loans from banks, Non-Bank lenders might be more flexible in their approach. They also may be more flexible when it comes to structuring loans.

Non-bank lenders are typically more digitally innovative than banks, meaning applications are often processed and approved in a short time, with funds made available within the next day, upon approval.

You’ll usually still need to disclose the purpose of the loan will be used for the business’s name, type of business and past history, as well as potentially providing security for larger loans, but since a complete business plan as well as a lengthy application aren’t always part of the deal, the process could be more quickly.

Attention: Relationships, repayments and red flags

If you have a good relationship with a bank’s management or an other lender, you may contact them regarding their application and lending process. Otherwise, your broker can assist you with the various requirements of lenders.

Many of the more recent or non-bank lenders are exclusively online, some lenders like have a dedicated loan advisor to help you through the application process and truly get to know your business’s needs.

If you’re considering non-bank lenders take a look at independent reviews. If an offer seems too good to be true like if you get pre-approval before you’ve even applied, or the lender is uncompromising in their approach think about speaking with advisors or brokers and looking into the matter prior to signing the contract.

If you’re borrowing from a bank or a Non-Bank lender, it is important to understand the terms of the loan and realistic about whether you’ll be able meet the repayments. One of the most important considerations is setting ground rules for yourself when deciding whether the business loan should be utilized to aid your business’s growth and to handle seasonal fluctuations, and fluctuating cash flows, or to profit from opportunities to buy stock in bulk, or to cover everyday expenses and operational costs.