Non-bank lenders versus Traditional bank loans

The decision to take a business loan for small businesses? The first decision is who to make an application with. Here’s an easy guide to the pros and cons of traditional lenders and Non-Bank lenders.

The first thing to consider is 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 is able make the payments
• Who understand the terms and conditions that come with the loan. Your adviser or broker will be there to assist you if you have any concerns.

If you are ready to make an investment in inventory, brand new equipment or technology, extra staff, training, renovation or new premises that can take your business to the next stage If so, you may want to weigh up the pros and cons of taking out the traditional loan from a bank versus working with a non-bank lender.

Bank or online lender?

Lending from banks

The brand reputation of a long-standing bank can be seen as solid or 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 for bank loans can sometimes be complex and lengthy, and requires a lot of paperwork that small entrepreneurs may be restricted by time constraints to meet. The process can be speedier when the lender has digital access to your financial data - although banks aren’t widely well-known for their expertise in data-driven small-business lending, they are getting better.

Like every type of lending, the possibility of lower interest rates might be considered in conjunction with attributes of the loan product in order in order to select the best type of loan. Likewise, lenders traditional bank loans may have strict criteria and cumbersome application processes, and are not flexible.

With cash flow so critical to the survival of lots of small businesses, the difference between a loan today that could fund stock to sell tomorrow, and a loan in the next month when the season’s demand has ended can be the difference that makes or breaks a business.

Online or non-bank business loans

A credit score that is strong and solid security are often a must-have for an bank loan, Non-Bank lenders might be more flexible in their approach. They can also tend to have greater flexibility in structuring loans.

Non-bank lenders are usually more digitally innovative than banks, so applications are often processed and approved in a short time, and funds are available within the next working day, following approval.

It is still necessary to provide details of what the loan is intended for as well as your company’s type and history, as well in the event of providing security for bigger loans, however, since a thorough business plan and cumbersome applications aren’t required in every arrangement, things can move faster.

Heads up: relationships, repayments , and red flags

If you’ve established a solid relationship with a bank manager or another lender, you can contact them regarding their application and lending process. In other cases, your broker will help you navigate the different lending requirements.

Many newer and non-bank lenders work exclusively on the internet, some lenders can provide a dedicated specialist in loan to guide you through the loan application process and truly get to know your business’s needs.

If you’re considering non-bank lenders review their reviews by independent sources. If an offer seems too appealing to be true, such as the pre-approval you receive before you’ve even submitted an application or if the lender seems extremely aggressive in their approach take a look at speaking with a broker or adviser and digging deeper before committing.

If you’re borrowing from a bank or non-bank lender, you’ll need to be clear about the terms of the loan and realistic about whether you can meet the payments. One of the most important considerations is creating a set of rules for yourself - deciding whether you should use business loans to help your business thrive by coping with the seasonal changes in fluctuations in cash flow, to take advantage of opportunities to purchase stock in massive quantities, or to pay for the costs of running a business and day-to-day operations.