Traditional bank loans versus non-bank lenders

What is the best way to choose a small-business loan? The first decision is who to make an application with. Here’s an easy guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

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

• With a clear roadmap for growth or a well-defined short-term objective
• Who can make the repayments
• If you are aware of the terms and terms associated with the loan. Your adviser or broker will be there to assist you with any questions.

If you’re willing to make an investment in inventory, new technology or equipment, extra staff, training and renovations or even new premises that can take your enterprise to the next step, then you might want to weigh up the pros and cons of taking out traditional bank loans versus using a non-bank lender.

Online or bank?

Bank loans

The brand reputation of a long-established bank can be considered solid or safe as could the feeling of security. New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The application for bank loans can be long and complicated and may require a large amount of paperwork which some small businesses owners may be constrained in time to fulfill. The process could be quicker in the event that the bank has digital ability to access your personal financial data - while banks aren’t usually recognized for their data-savvy approach to small business lending, they are becoming better.

Like any type of loan, the possibility of lower interest rates could be considered in conjunction with the features of the loan product to determine the most suitable type of loan. Likewise, lenders conventional banks are likely to have strict criteria and cumbersome applications processes as well as being inflexible.

Cash flow is so crucial to the survival of many small enterprises, the gap between a loan that could be used to fund the sale of stock in the next day, and a loan in the next month after the season’s demand has ended can be make or break.

Business online or non-bank loans

When a solid credit history and solid security is often necessary for obtaining an bank loan, Non-Bank lenders could be more flexible in their approach. They can also tend to offer more flexibility when it comes to structuring loans.

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

It is still necessary to provide details of what the loan will be used for, your business type and its history, as in the event of providing security for larger loans, however, because a comprehensive business plan as well as a lengthy application aren’t always part of the deal, things may move faster.

Attention: Relationships, red flags and payments

If you have a good relationship with a bank’s management or an other lender, you may discuss their lending and application process. If not, your broker could assist you with the various requirements of lenders.

While many newer or non-bank lenders operate exclusively on the internet, some lenders can assign a loan specialist to guide you through the loan application process and get to know the requirements of your company.

If you’re considering non-bank lenders take a look at independent reviews. If the offer you’re considering seems too promising to be true for instance, when you are pre-approved before you’ve even applied or if the lender seems very aggressive, consider speaking to an adviser or broker and examining the details before committing.

When borrowing from a bank or Non-Bank lender, you may want to understand the terms and whether you’ll be able meet the repayments. A key consideration may be creating a set of rules for yourself - deciding whether business loans are needed to aid your business’s growth and to handle the seasonal changes in cash flow fluctuations, to profit from opportunities to buy stock in massive quantities, or to pay for daily expenses and operations.