Standard bank loans versus non-bank lenders

What is the best way to choose a small-business loan? First, you must decide who to apply with. Here’s a simple guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

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

• With a clear path for expansion or a clearly-defined short-term objective
• Who will be able to pay the loan
• You are aware of the terms and conditions associated with the loan. Your broker or adviser is here to help you with any concerns.

If you’re willing to invest in inventory, new equipment or technology or staffing, additional training or renovation, or even a new location that could take your small business to the next stage, then you might want take a look at the pros and cons of taking out a traditional bank loan versus taking on a Non-Bank lender.

Online or bank?

Credit from banks

The reputation of a long-established bank can be considered solid or safe, as can 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 for bank loans may be long and complicated and will require a certain amount of paperwork which some small business owners are limited in time to fulfill. The process could be quicker if the bank has digital ability to access your personal financial records - although banks aren’t widely well-known for their expertise in data-driven small-business lending, they are getting better.

As with all types of lending the chance of lower interest rates might be considered in conjunction with the features of the loan product to choose the most suitable type of loan. As for the lender Traditional bank loans may have strict criteria and lengthy application procedures, and are not flexible.

With cash flow being so vital for the survival of many small-sized businesses, the distinction between a loan that can fund inventory to sell tomorrow, or a loan in the next month , when the season’s peak is over, can be the difference that makes or breaks a business.

Non-bank or online business loans

A credit score that is strong and solid security are typically essential for the bank loan, non-bank lenders might be more flexible with their approach. They may also have more flexibility in the way they structure loans.

Non-Bank lenders are often more innovative in their digital technology than banks. This means the applications may be accepted and processed quickly, and the funds can be made available by the next dayafter approval.

There is a need to provide details of what the loan will be used for the business’s name, type of business and history, as well possibly providing security for loans that are larger, however, because a comprehensive business plan and a long-winded application aren’t required in every agreement, things could move faster.

Beware of relationships, repayments and red flags

If you have a strong relationship with a bank manager or another lender, you can contact them regarding their lending and application process. If not, your broker could help you navigate the various requirements of lenders.

Many newer and non-bank lenders operate exclusively online, some lenders can provide a dedicated loan advisor to help you through the process of applying and really 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 you think an offer is too good to be true like getting pre-approval prior to applying or if the lender seems very aggressive think about speaking with an adviser or broker, and investigating further before committing.

If you’re borrowing money from a bank or non-bank lender, you’ll need to understand the conditions and be realistic about whether you’ll be able meet the obligations. The most important thing to consider is setting ground rules for yourself in deciding if you should use business loans to aid your business’s growth, to manage the seasonal changes in fluctuating cash flows, or to profit from opportunities to buy inventory in bulk, or to cover day-today operations and costs.