Non-bank lenders versus Typical bank loans

Choosing a small business loan? The first decision is who to approach. This is a quick guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

The first thing to consider is small-business financing is usually a good option for business owners:

• With a clear plan for expansion or a clearly-defined short-term objective
• Who can make the repayments
• If you are aware of the terms and terms associated with the loan – your broker or adviser is here to help if you have any questions.

If you’re ready to make an investment in inventory, brand new equipment or technology or staffing, additional training, renovation or new premises that could take your small company to the next level, then you might want take a look at the pros and cons of taking on a traditional bank loan versus using a non-bank lender.

Bank or online lender?

Credit from banks

The brand reputation of a long-established bank can be considered solid and 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 application process for bank loans may be lengthy and complicated, and may require a large amount of paperwork that small business owners are limited in time to fulfill. The process could be quicker when the lender has digital ability to access your personal financial records - even though banks aren’t known for being data-savvy in small-business lending, they are getting better.

Similar to all types of lending, the possibility of lower interest rates might be considered in conjunction with attributes of the loan product in order to choose the best type of loan. The lender and the loan - loans from traditional banks could have strict guidelines and cumbersome applications processes and may not be flexible.

With cash flow so critical to the survival of lots of small-sized businesses, the distinction between a loan granted today that could fund stock to sell in the near future, and an offer for a loan next month after the seasonal demand is over can be the difference between making or breaking.

Non-bank or online business loans

If a good credit history and solid security is often essential for loans from banks, Non-Bank lenders could be more flexible in their approach. They could also have more flexibility when it comes to structuring loans.

Non-Bank lenders are generally more innovative in their digital technology than banks. This means applications can sometimes be processed and approved in a short time, and funds are available within the next day, upon approval.

There is a need to give details about what the loan will be used for the business’s name, type of business and background, as well possibly providing the security required for larger loans but because a comprehensive business plan and lengthy applications aren’t required in every deal, the process could be faster.

Heads up: relationships, red flags, and repayments

If you’re in a long-standing relationship with a bank’s managing director or another lender, you can talk to them about their application and lending process. Your broker may help you navigate the different requirements of lenders.

Many newer and non-bank lenders operate exclusively online, some lenders can assign a specialist in loan to guide you through the application process and to really understand your business needs.

If you’re considering Non-Bank lenders review their reviews by independent sources. If the offer you’re considering seems too promising to be true like the pre-approval you receive before you’ve even applied or the lender seems aggressive in their approach think about speaking with an adviser or broker and digging deeper before signing up.

When borrowing from a non-bank or bank lender, you may want to know the terms and whether you’re able to make the repayments. One of the most important considerations is setting ground rules for yourself in deciding if you should use business loans to aid your business’s growth in managing the seasonal changes in fluctuating cash flows, or to profit from opportunities to buy inventory in bulk, or to cover the costs of running a business and day-to-day operations.