Non-bank lenders vs Traditional bank loans

How do you choose a small business loan? The first thing to consider is which lender to apply with. Here’s an easy guide to the pros and cons of traditional lenders and Non-Bank lenders.

First up, small business financing usually suits business owners:

• With a clearly defined plan of growth or a well-defined short-term goals
• Who can make the repayments
• You are aware of the terms and conditions with the loan – your broker or adviser is here to assist you with any concerns.

If you’re looking to make an investment in inventory, brand new technology or equipment, extra staff, training or renovation, or even a new location that will take your business to the next stage, then you might want to consider the pros and cons of taking on the traditional bank loan or dealing with an Non-Bank lender.

Online or bank?

Lending from banks

The reputation of a established bank can be regarded as safe or solid and can also give a sense of security. New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The loan application process for bank loans could be complex and lengthy, and require a level of paperwork that small business owners might be limited by time constraints to meet. The process might be speedier when the bank has electronic access to your financial records even though banks aren’t considered to be data-savvy when it comes to small-business credit, but they’re becoming better.

As with every type of lending it is possible that lower interest rates will require consideration alongside the features of the loan product to determine the most appropriate type of loan. As for the lender traditional bank loans could have strict guidelines and lengthy application procedures, and may not be flexible.

With cash flow so critical for the survival of many small enterprises, the gap between a loan today that can fund inventory to sell in the near future, and a loan in the next month , when the seasonal demand is over can be the difference between making or breaking.

Non-bank or online business loans

If a good credit history and solid security are typically required for loans from banks, Non-Bank lenders may be more flexible with their approach. They could also offer more flexibility in structuring loans.

Non-Bank lenders are often more technologically advanced than banks, meaning applications can sometimes be completed and approved swiftly, and the funds can be made available by the next dayafter approval.

There is a need to give details about what the loan is for the business’s name, type of business and its history, as being able to provide security for loans that are larger, however, because a comprehensive business plan as well as a lengthy application aren’t required in every deal, things may move faster.

Heads up: relationships, red flags, and repayments

If you’re in a long-standing relationship with a bank’s manager or another lender, you can speak with them about the lending process and their application. Your broker may help you navigate the various requirements of lenders.

Although many of the newer non-bank lenders work exclusively online, some lenders like have a dedicated specialist in loan to guide you through the process of applying and get to know the requirements of your company.

If you’re considering non-bank lenders take a look at independent reviews. If you think an offer is too tempting to be real or when you are pre-approved before you’ve even submitted an application or the lender seems extremely aggressive in their approach you should talk to an adviser or broker and examining the details before signing on.

If you’re borrowing from a non-bank or bank lender, you’ll need to be clear about the terms and realistic about how you’ll be able to meet the repayments. One of the most important considerations is setting ground rules for yourself when deciding whether business loans are needed to help your business thrive, to manage the seasonal changes in cash flow fluctuations, to take advantage of opportunities to buy stock in bulk, or to cover the costs of running a business and day-to-day operations.