Standard bank loans versus non-bank lenders

How do you choose a small business loan? First, you must decide who to approach. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First up, small business finance is typically a great option for business owners:

• With a clear plan for development or a well-defined, short-term objective
• Who will be able to pay the loan
• Know the terms and conditions associated with the loan. Your advisor or broker is available to assist you with any concerns.

If you’re looking to invest in inventory, brand new technology or equipment or staffing, additional training or renovation, or even a new location which could help take your small company to the next level, then you might want to weigh up the pros and cons of taking out a traditional bank loan versus using a non-bank lender.

Do you prefer a lender online or a bank?

Loans from banks

The reputation of a established bank can be regarded as solid or safe as could the feeling of security – in 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 complicated and may require a large amount of paperwork which some small business owners are limited in time to fulfill. The process can be speedier when the bank has electronic access to your financial records while banks aren’t usually considered to be data-savvy when it comes to small business loans, their capabilities are getting better.

Like every type of lending the chance of lower interest rates will require consideration alongside loan product features to decide on the best type of loan. The lender and the loan conventional banks might have strict requirements and cumbersome application processes, and lack flexibility.

With cash flow being so vital to the survival of many small businesses, the difference between a loan today which could be used to fund the sale of stock tomorrow, and a loan granted in the next month when seasonal demand is over can be make or break.

Online or non-bank business loans

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

Non-Bank lenders are often more technologically advanced than banks, so applications are often accepted and processed quickly, and the funds can be made available by the next working day, following approval.

There is a need to give details about what the loan is intended for along with your business’s nature and history, as well as potentially providing the security required for larger loans but because a comprehensive business plan as well as a lengthy application aren’t always part of the agreement, things could move more quickly.

Beware of relationships, repayments and red flags

If you have a good relationship with a bank’s manager or another lender, you can discuss their lending and application process. If not, your broker could help you navigate the different lending requirements.

While many newer or non-bank lenders work exclusively online, some lenders like have a dedicated expert to guide you through the application process and to really understand your business needs.

If you’re considering non-bank lenders look into independent reviews. If you think an offer is too good to be true or the pre-approval you receive before applying or the lender seems extremely aggressive in their approach take a look at speaking with advisors or brokers and investigating further before signing on.

If you’re borrowing from a non-bank or bank lender, you may want to be aware of the conditions and be realistic about whether you’re able to make the repayments. The most important thing to consider is setting ground rules for yourself - deciding whether business loans are needed to help your business thrive, to manage seasonal fluctuations and fluctuations in cash flow, to benefit from opportunities to buy stock in large quantities, or to fund daily expenses and operations.