Typical bank loans vs non-bank lenders

What is the best way to choose a small-business loan? The first decision is who to go with. Here’s a simple guide to the pros and cons of traditional lenders as well as Non-Bank lenders.

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

• With a clear plan for expansion or a clearly-defined short-term goals
• Who is able make the payments
• If you are aware of the terms and conditions with the loan – your adviser or broker is there to help you with any concerns.

If you are ready to make an investment in the 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 If so, you may want to consider the advantages and disadvantages of taking on the traditional bank loan or working with a non-bank lender.

Online or bank?

Bank loans

The brand reputation of a established bank can be regarded as solid and secure and can also give a sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The application process for bank loans could be complex and lengthy, and may require a large amount of paperwork that some small business owners are limited by the time they have to complete. The process might be speedier when the bank has electronic access to your financial records although banks aren’t widely 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 might require consideration alongside attributes of the loan product in order to choose the most suitable type of loan. As for the lender traditional bank loans could have strict guidelines and lengthy application procedures, and lack flexibility.

Since cash flow is crucial for the survival of many small businesses, the differences between a loan today that can fund inventory to sell in the next day, and the loan that is granted next month , when the season’s demand has ended can be the difference between a successful or unsuccessful business.

Online or non-bank business loans

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

Non-Bank lenders are generally more technologically advanced than banks, so that applications are sometimes accepted and processed quickly, and funds are available within the next working day, following approval.

There is a need to disclose the purpose of the loan is being used for the business’s name, type of business and background, as well being able to provide the security required for larger loans but because a comprehensive business plan and cumbersome applications aren’t required in every agreement, things could move more quickly.

Heads up: relationships, repayments and red flags

If you have a good relationship with a bank’s manager or another lender, you could discuss the lending process and their application. Otherwise, your broker can assist you with the various requirements of lenders.

Many newer and non-bank lenders work exclusively online, some lenders like can assign a loan specialist to guide you through the application process and to really understand the requirements of your company.

If you’re thinking about Non-Bank lenders take a look at independent reviews. If the offer you’re considering seems too tempting to be real or getting pre-approval prior to you’ve even made an application, or the lender is very aggressive you should talk to an adviser or broker, and digging deeper before committing.

If you’re borrowing money from a non-bank or bank lender, you’ll want to understand the terms and whether you’ll be able meet the loan repayments. One important aspect to think about is creating a set of rules for yourself in deciding if business loans are needed to support your business’s success, to manage the seasonal changes in cash flow fluctuations, to benefit from opportunities to buy stock in large quantities, or to fund day-today operations and costs.