Typical bank loans versus non-bank lenders

What is the best way to choose a small-business loan? The first decision is who to go with. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

The first thing to consider is small-business financing is usually a good option for business owners:

• With a clear plan for development or a well-defined, time-frame
• Who will be able to pay the loan
• You are aware of the terms and conditions with the loan. Your advisor or broker is available to assist you if you have any questions.

If you are ready to make an investment in the inventory, new technology or equipment, extra staff, training or renovation, or even a new location which could help take your small enterprise to the next step You may want to consider the advantages and disadvantages of taking on the traditional loan from a bank versus working with a non-bank lender.

Online or bank?

Lending from banks

The reputation for a brand of long-established bank is considered solid and secure as could the feeling of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The process of applying for bank loans can be long and complex, and requires a lot of paperwork that small entrepreneurs may be restricted by time constraints to meet. The process can be speedier if the bank has digital accessibility to financial records although banks aren’t widely recognized for their data-savvy approach to small business lending, they are becoming better.

As with any type of loan it is possible that lower interest rates may need to be considered along with characteristics of loan products to decide on the most suitable type of loan. The lender and the loan traditional bank loans could have strict guidelines and cumbersome applications processes as well as being inflexible.

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

Online or non-bank business loans

When a solid credit history and solid security are usually a must-have for the bank loan, non-bank lenders can be more flexible with their approach. They can also tend to have more flexibility in the way they structure loans.

Non-Bank lenders are generally more technologically advanced than banks. This means the applications may be accepted and processed quickly, with funds being available within the next dayafter approval.

You’ll still have to provide details of what the loan will be used for the business’s name, type of business and past history, as well in the event of providing security for loans that are larger, but because a comprehensive business plan and a long-winded application aren’t required in every arrangement, things can move more quickly.

Beware of relationships, repayments and red flags

If you’re in a long-standing relationship with a bank’s manager or another lender, you could talk to them about their application and lending process. In other cases, your broker will help you navigate the requirements of different lenders.

Although many of the newer non-bank lenders are exclusively online, certain lenders have a dedicated loan advisor to help you through the loan application process and really get to know the needs of your business.

If you’re thinking about Non-Bank lenders look into independent reviews. If an offer appears too good to be true like when you are pre-approved before you’ve even submitted an application or if the lender appears uncompromising in their approach think about speaking with a broker or adviser and looking into the matter before signing up.

Whether you’re borrowing from a bank or non-bank lender, you’ll need to understand the terms of the loan and realistic about whether you’re able to make the repayments. One important aspect to think about is creating a set of rules for yourself in deciding if you should use business loans to help your business thrive by coping with the seasonal changes in fluctuations in cash flow, to take advantage of opportunities to buy inventory in massive quantities, or to pay for the costs of running a business and day-to-day operations.