Typical bank loans versus non-bank lenders

The decision to take a business loan for small businesses? First, you must decide who to go with. Here’s an easy guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

First of all, small business financing is usually a good option for business owners:

• With a clear roadmap for development or a well-defined, time-frame
• Who is able make the payments
• Who understand the terms and conditions 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 the inventory, new equipment or technology or staffing, additional training and renovations or even new premises that can take your business to the next stage, then you might want to consider the advantages and disadvantages of taking on the traditional loan from a bank versus dealing with an Non-Bank lender.

Online or bank?

Lending from banks

The reputation of a established bank can be regarded as safe or solid as could the feeling of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The process of applying for bank loans could be complex and lengthy, and requires a lot of paperwork which some small business owners might be limited in time to fulfill. The process can be speedier when the lender has digital acces to your bank data - although banks aren’t widely well-known for their expertise in data-driven small-business loaning, the situation is becoming better.

As is the case with any type of loan the chance of lower interest rates will require consideration alongside attributes of the loan product in order in order to select the most suitable type of loan. The lender and the loan conventional banks may have strict criteria and lengthy application procedures, and are not flexible.

With cash flow being so vital to the survival of lots of small enterprises, the gap between a loan today which could be used to fund the sale of stock tomorrow, or an offer for a loan next month , when the seasonal demand is over can be the difference that makes or breaks a business.

Non-bank or online business loans

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

Non-Bank lenders are generally more innovative in their digital technology than banks, which means applications can sometimes be completed and approved swiftly, and funds are available within the next day, upon approval.

It is still necessary to give details about what the loan will be used for, your business type and background, as well in the event of providing security for larger loans, but because a comprehensive business plan and a long-winded application aren’t required in every agreement, things could move more quickly.

Beware of relationships, repayments and red flags

If you have a good relationship with a bank’s managing director or another lender, you could speak with them about the lending process and their application. Otherwise, your broker can assist you in understanding the different lending requirements.

Many newer and non-bank lenders work exclusively online, some lenders like offer a dedicated loan advisor to help you through the application process and to really understand your business needs.

If you’re thinking about Non-Bank lenders look into independent reviews. If the offer you’re considering seems too promising to be true for instance, getting pre-approval prior to applying or if the lender seems extremely aggressive in their approach think about speaking with an adviser or broker and looking into the matter before signing up.

Whether you’re borrowing from a bank or non-bank lender, you’ll want to be aware of the terms of the loan and realistic about whether you’ll be able meet the payments. One of the most important considerations is setting the ground rules for your business and deciding if business loans should be used to boost your business’s performance, to manage the seasonal changes in cash flow fluctuations, to benefit from opportunities to purchase stock in large quantities, or to fund everyday expenses and operational costs.