Traditional bank loans versus non-bank lenders

How do you choose a small business loan? The first thing to consider is which lender to go with. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First up, small business financing typically suits business owners:

• With a clear path for development or a well-defined, short-term goal
• Who can make the repayments
• Who understand the terms and conditions that come with the loan. Your adviser or broker is there to assist you if you have any questions.

If you’re ready to invest in the inventory, new equipment or technology, extra staff, training, renovation or new premises that can take your company to the next level You may want to consider the pros and cons of taking out the traditional loan from a bank versus taking on a Non-Bank lender.

Bank or online lender?

Lending from banks

The reputation of a established bank can be regarded 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 are subject to the same rules.

The process of applying for bank loans can sometimes be long and complex, and will require a certain amount of paperwork that small entrepreneurs may be restricted by time to meet. The process might be speedier when the bank has electronic ability to access your personal financial data - although banks aren’t widely well-known for their expertise in data-driven small business loans, their capabilities are getting better.

As is the case with all kinds of loans the chance of lower interest rates may be considered in conjunction with the features of the loan product to decide on the most suitable type of loan. As for the lender Traditional bank loans may have strict criteria and cumbersome applications processes and are not flexible.

With cash flow so critical to the survival of many small-sized businesses, the distinction between a loan today which can fund inventory to sell in the near future, and a loan granted next month when the seasonal demand is over can be the difference that makes or breaks a business.

Business online or non-bank loans

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

Non-bank lenders are typically more technologically advanced than banks, meaning the applications may be processed and approved in a short time, with funds made available within the next working day, following approval.

It is still necessary to explain what the loan is being used for along with your business’s nature and its history, as in the event of providing security for loans that are larger, but since a complete business plan and lengthy applications aren’t required in every deal, the process could be quicker.

Heads up: relationships, repayments , and red flags

If you have a good relationship with a bank’s management or another lender, you can speak with them about their application and lending process. In other cases, your broker will help you navigate the different requirements of lenders.

While many newer or non-bank lending institutions operate entirely on the internet, some lenders can assign a expert to guide you through the loan application process and get to know the needs of your business.

If you’re considering Non-Bank lenders, check out independent reviews. If the offer you’re considering seems too tempting to be real for instance, the pre-approval you receive before applying or if the lender appears extremely aggressive in their approach think about speaking with advisors or brokers and digging deeper before committing.

Whether you’re borrowing from a bank or non-bank lender, you may want to know the terms and how you’ll be able to meet the loan repayments. The most important thing to consider is setting the ground rules for your business - deciding whether business loans should be used to support your business’s success in managing seasonal fluctuations, and cash flow fluctuations, to take advantage of opportunities to purchase stock in large quantities, or to fund everyday expenses and operational costs.