Non-bank lenders versus Traditional bank loans

What is the best way to choose a small-business loan? The first thing to consider is which lender to make an application with. This is a quick guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

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

• With a clearly defined plan of growth or a well-defined time-frame
• Who will be able to pay the loan
• If you are aware of the terms and conditions associated with the loan – your advisor or broker is available to help you with any questions.

If you’re willing to make an investment in the inventory, new equipment or technology and staffing, renovation or new premises that can take your enterprise to the next step and beyond, then you should take a look at the pros and cons of taking out the traditional bank loan or using a non-bank lender.

Do you prefer a lender online or a bank?

Lending from banks

The reputation of a established bank can be regarded as solid or safe in the sense 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 could be long and complex, and may require a large amount of paperwork that some smaller businesses owners may be constrained in time to fulfill. The process might be speedier when the lender has digital ability to access your personal financial data - while banks aren’t usually well-known for their expertise in data-driven small business credit, but they’re becoming better.

As is the case with any type of loan the chance of lower interest rates may need to be considered alongside loan product features in order to select the most suitable type of loan and lender conventional banks may have strict criteria as well as lengthy and complicated application processes and are not flexible.

With cash flow so critical for the survival of many small businesses, the difference between a loan today that could fund stock to sell in the near future, and the loan that is granted next month when the seasonal demand is gone, could be the difference between a successful or unsuccessful business.

Non-bank or online business loans

When a solid credit history and solid security are often a must-have for a bank loan, Non-Bank lenders could be more flexible with their approach. They may also offer more flexibility in the way they structure loans.

Non-bank lenders are usually more innovative in their digital technology than banks. This means applications are often processed and approved quickly and funds are available within the next day, upon approval.

It is still necessary to provide details of what the loan will be used for, your business type and background, as well being able to provide security for bigger loans, however, because a comprehensive business plan and a long-winded application aren’t always part of the deal, things may move faster.

Beware of relationships, red flags, and repayments

If you have a good relationship with a bank’s management or an additional lender, you might discuss the process of applying for loans and obtaining approval. Otherwise, your broker can guide you through the different lending requirements.

Although many of the newer non-bank lenders work exclusively online, certain lenders have a dedicated specialist in loan to guide you through the process of applying and really get to know the needs of your business.

If you’re considering non-bank lenders take a look at independent reviews. If an offer seems too appealing to be true, such as when you are pre-approved before you’ve even made an application, or the lender is extremely aggressive in their approach take a look at speaking with an adviser or broker and examining the details before signing on.

Whether you’re borrowing from a bank or non-bank lender, you’ll need to be aware of the terms of the loan and realistic about how you’ll be able to meet the loan repayments. The most important thing to consider is making a list of the rules you’ll need to follow when deciding whether the business loan should be utilized to aid your business’s growth and to handle seasonal fluctuations and cash flow fluctuations, to take advantage of opportunities to buy stock in huge quantities, or for daily expenses and operations.