Typical bank loans vs non-bank lenders

How do you choose a small business loan? The first step is deciding who to make an application with. Here’s an easy guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First up, small business financing typically suits business owners:

• With a clearly defined plan of expansion or a clearly-defined short-term goals
• Who can make the repayments
• Know the terms and conditions with the loan – your adviser or broker will be there to help if you have any questions.

If you are ready to make an investment in inventory, brand new technology or equipment as well as additional staff, training, renovation or new premises that can take your company to the next level and beyond, then you should to consider the pros and cons of taking on the traditional loan from a bank versus working with a non-bank lender.

Online or bank?

Lending from banks

The brand reputation of a long-established bank is considered solid or safe as could the feeling of security. New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same regulations.

The application process for bank loans can sometimes be long and complicated and require a level of paperwork that small entrepreneurs may be restricted in time to fulfill. The process might be speedier when the lender has digital accessibility to financial data - while banks aren’t usually well-known for their expertise in data-driven small-business loaning, the situation is getting better.

As with all kinds of loans it is possible that lower interest rates might need to be considered alongside loan product features to determine the most suitable type of loan. Likewise, lenders Traditional bank loans might have strict requirements and cumbersome application processes, as well as being inflexible.

With cash flow so critical for the survival of many small businesses, the difference between a loan that can be used to purchase stock in the near future, and a loan in the next month , when the season’s demand has ended can be the difference between a successful or unsuccessful business.

Business online or non-bank loans

When a solid credit history and solid security are typically essential for the bank loan, non-bank lenders could be more flexible with their approach. They also may be more flexible in structuring loans.

Non-bank lenders are usually more innovative in their digital technology than banks, meaning the applications may be processed and approved quickly with funds being available within the next dayfollowing approval.

There is a need to provide details of what the loan is for, your business type and past history, as well being able to provide security for bigger loans, however, since a thorough business plan and cumbersome applications aren’t required in every deal, things may move more quickly.

Check out these relationships: repayments and red flags

If you have a good relationship with a bank’s manager or another lender, you could contact them regarding the process of applying for loans and obtaining approval. Otherwise, your broker can assist you in understanding the various requirements of lenders.

While many newer or non-bank lenders are exclusively online, some lenders have a dedicated loan specialist to guide you through the application process and to really understand your business needs.

If you’re thinking about Non-Bank lenders take a look at independent reviews. If the offer you’re considering seems too good to be true or if you get pre-approval before you’ve even submitted an application, or the lender is aggressive in their approach think about speaking with advisors or brokers and looking into the matter before committing.

When borrowing from a non-bank or bank lender, you’ll want to be aware of the terms and realistic about whether you’ll be able meet the loan repayments. A key consideration may be setting ground rules for yourself when deciding whether business loans are needed to boost your business’s performance and to handle the seasonal changes in fluctuating cash flows, or to profit from opportunities to buy inventory in large quantities, or to fund everyday expenses and operational costs.