Typical bank loans vs non-bank lenders

How do you choose a small business loan? First, you must decide who to make an application with. Here’s a brief guide to the pros and cons of traditional lenders and Non-Bank lenders.

First of all, small business financing usually suits business owners:

• With a clearly defined plan of expansion or a clearly defined short-term goal
• Who is able make the payments
• Know the terms and conditions that come with the loan – your advisor or broker is available to help if you have any concerns.

If you’re willing to invest in the inventory, new technology or equipment, extra staff, training as well as a renovation or new building that could take your small business to the next level, then you might want to weigh the advantages and disadvantages of taking on the traditional loan from a bank versus working with a non-bank lender.

Are you a bank or an online lender?

Loans from banks

The reputation of a long-established bank can be considered solid or secure in the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The application process for bank loans can be long and complex, and will require a certain amount of paperwork that some small businesses owners may be constrained in time to fulfill. The process can be speedier if the bank has digital ability to access your personal financial records even though banks aren’t recognized for their data-savvy approach to small business credit, but they’re getting better.

As with every type of lending there is a possibility of lower interest rates could need to be considered along with the features of the loan product in order to select the most appropriate type of loan. The lender and the loan - loans from traditional banks could have strict guidelines and cumbersome applications processes as well as being inflexible.

Cash flow is so crucial to the survival of lots of small-sized businesses, the distinction between a loan granted today that could be used to fund the sale of stock tomorrow, or an offer for a loan next month , when the seasonal demand is gone, could be make or break.

Online or non-bank business loans

A credit score that is strong and solid security are often essential for a bank loan, Non-Bank lenders could be more flexible with their approach. They may also have greater flexibility in the way they structure loans.

Non-Bank lenders are often more digitally innovative than banks, which means the applications may be completed and approved swiftly, with funds made available within the next dayfollowing approval.

You’ll usually still need to disclose the purpose of the loan will be used for as well as your company’s type and history, as well possibly providing security for loans that are larger, but because a comprehensive business plan and a long-winded application aren’t required in every deal, things may move quicker.

Heads up: relationships, repayments , and red flags

If you’ve established a solid relationship with a bank’s managing director or an additional lender, you might contact them regarding the lending process and their application. If not, your broker could guide you through the various requirements of lenders.

Although many of the newer non-bank lenders operate exclusively online, certain lenders offer a dedicated expert to guide you through the application process and really get to know the needs of your business.

If you’re thinking about Non-Bank lenders review their reviews by independent sources. If an offer seems too promising to be true like getting pre-approval prior to applying or if the lender appears extremely aggressive in their approach, consider speaking to an adviser or broker, and digging deeper before committing.

Whether you’re borrowing from a bank or a Non-Bank lender, you’ll want to be clear about the terms and whether you’ll be able meet the payments. A key consideration may be creating a set of rules for yourself when deciding whether the business loan should be utilized to support your business’s success, to manage seasonal ups and downs and fluctuations in cash flow, or to profit from opportunities to purchase stock in bulk, or to cover day-today operations and costs.