Typical bank loans versus non-bank lenders

Choosing 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 , small-scale business financing usually suits business owners:

• With a clear roadmap for development or a well-defined, short-term goal
• Who is able to make the repayments
• Know the terms and conditions with the loan – your adviser or broker will be there to help you with any questions.

If you’re ready to invest in the inventory, new equipment or technology as well as additional staff, training and renovations or even new premises that can take your company to the next level You may want take a look at the advantages and disadvantages of taking on the traditional bank loan or working with a non-bank lender.

Online or bank?

Credit from banks

The brand reputation of a long-established bank is considered solid and secure, as can the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same regulations.

The loan application process for bank loans may be long and complex, and requires a lot of paperwork that some small business owners might be limited by time constraints to meet. The process could be quicker if the bank has digital accessibility to financial data - while banks aren’t generally well-known for their expertise in data-driven small-business credit, but they’re getting better.

As is the case with all types of lending the chance of lower interest rates will need to be considered alongside characteristics of loan products in order to select the best type of loan. As for the lender Traditional bank loans might have strict requirements and lengthy application procedures, and are not flexible.

Cash flow is so crucial to the survival of many small enterprises, the gap between a loan today which can fund inventory to sell in the next day, and a loan in the next month , when the season’s demand has ended can be the difference between a successful or unsuccessful business.

Non-bank or online business loans

If a good credit history and solid security is often required for the bank loan, non-bank lenders could be more flexible with their approach. They could also be more flexible in structuring loans.

Non-Bank lenders are often more technologically advanced than banks, so the applications may be processed and approved in a short time, and funds are available within the next working day, following approval.

You’ll still have to disclose the purpose of the loan is intended for, your business type and history, as well possibly providing the security required for larger loans but since a complete business plan and cumbersome applications aren’t always part of the deal, things may move more quickly.

Heads up: relationships, repayments and red flags

If you’re in a long-standing relationship with a bank’s manager or an additional lender, you might contact them regarding the process of applying for loans and obtaining approval. If not, your broker could assist you in understanding the various requirements of lenders.

Many of the more recent or non-bank lenders are exclusively online, some lenders can provide a dedicated loan specialist to guide you through the loan application process and to really understand the needs of your business.

If you’re thinking of a loan from a Non-Bank lender look into independent reviews. If the offer you’re considering seems too tempting to be real for instance, the pre-approval you receive before applying or the lender seems very aggressive, consider speaking to an adviser or broker, and examining the details before committing.

Whether you’re borrowing from a bank or a Non-Bank lender, you’ll want to be aware of the terms and whether you can meet the repayments. One of the most important considerations is creating a set of rules for yourself - deciding whether the business loan should be utilized to boost your business’s performance and to handle the seasonal changes in fluctuations in cash flow, to take advantage of opportunities to buy inventory in huge quantities, or for the costs of running a business and day-to-day operations.