Non-bank lenders versus Traditional bank loans

Choosing a small business loan? The first step is deciding who to approach. Here’s an easy guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

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

• With a clear roadmap for expansion or a clearly-defined time-frame
• Who is able make the payments
• Who understand the terms and conditions associated with the loan – your advisor or broker is available to assist you with any questions.

If you’re looking to make an investment in inventory, new equipment or technology, extra staff, training or renovation, or even a new location that can take your enterprise to the next step You may want to weigh the advantages and disadvantages of taking out 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 reputation of a long-established bank can be considered solid and secure in the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The application process for bank loans may be long and complicated and will require a certain amount of paperwork that some smaller business owners are limited by the time they have to complete. The process can be speedier if the bank has digital access to your financial records - while banks aren’t usually well-known for their expertise in data-driven small-business credit, but they’re getting better.

As with any type of loan there is a possibility of lower interest rates will be considered in conjunction with loan product features in order to select the most appropriate type of loan and lender conventional banks are likely to have strict criteria and lengthy application procedures, and may not be flexible.

Cash flow is so crucial to the survival of a lot of small enterprises, the gap between a loan that can fund inventory to sell tomorrow, and a loan in the next month when the seasonal demand is over can be the difference that makes or breaks a business.

Non-bank or online business loans

Where a strong credit history and solid security is often required for an bank loan, Non-Bank lenders may be more flexible in their approach. They also may have greater flexibility in the way they structure loans.

Non-bank lenders are usually more digitally innovative than banks, so that applications are sometimes processed and approved quickly and funds are available within the next working day, following approval.

It is still necessary to disclose the purpose of the loan will be used for along with your business’s nature and history, as well being able to provide security for loans that are larger, however, because a comprehensive business plan and cumbersome applications aren’t always part of the agreement, things could move faster.

Check out these relationships: repayments , and red flags

If you’re in a long-standing relationship with a bank manager or another lender, you can speak with them about the lending process and their application. Otherwise, your broker can help you navigate the different requirements of lenders.

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

If you’re thinking of a loan from a Non-Bank lender, check out independent reviews. If an offer seems too appealing to be true or getting pre-approval prior to applying or the lender seems aggressive in their approach take a look at speaking with a broker or adviser and looking into the matter before signing up.

Whether you’re borrowing from a bank or Non-Bank lender, you’ll need to be clear about the terms of the loan and realistic about how you’ll be able to meet the obligations. One important aspect to think about is making a list of the rules you’ll need to follow and deciding if business loans should be used to boost your business’s performance by coping with the seasonal changes in fluctuations in cash flow, to benefit from opportunities to purchase inventory in large quantities, or to fund day-today operations and costs.