Typical bank loans versus non-bank lenders

The decision to take a business loan for small businesses? The first thing to consider is which lender to go with. Here’s a simple guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

The first thing to consider is small-business finance is typically a great option for business owners:

• With a clearly defined plan of expansion or a clearly defined short-term goals
• Who is able make the payments
• Who understand the terms and conditions that come with the loan – your broker or adviser is here to assist you if you have any questions.

If you’re looking to make an investment in inventory, new technology or equipment and staffing and renovations or even new premises that will take your company to the next level and beyond, then you should to weigh the pros and cons of taking on traditional bank loans versus taking on a Non-Bank lender.

Do you prefer a lender online or a bank?

Loans from banks

The reputation of a long-standing bank can be seen as solid or secure and can also give a sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The loan application process for bank loans can be long and complex, and require a level of paperwork that some small business owners are limited by time constraints to meet. The process might be speedier when the lender has digital acces to your bank records - while banks aren’t generally known for being data-savvy in small-business lending, they are becoming better.

Like every type of lending there is a possibility of lower interest rates might be considered in conjunction with loan product features to decide on the most appropriate kind of loan and lender - loans from traditional banks may have strict criteria and cumbersome applications processes and may not be flexible.

With cash flow so critical for the survival of many small businesses, the differences between a loan that can fund inventory to sell tomorrow, and an offer for a loan next month after the seasonal demand is gone, could be the difference between making or breaking.

Online or non-bank business loans

Where a strong credit history and solid security are often necessary for obtaining loans from banks, Non-Bank lenders may be more flexible in their approach. They may also have more flexibility when it comes to structuring loans.

Non-Bank lenders are often more technologically advanced than banks, meaning applications are often completed and approved swiftly, and funds are available within the next day, upon approval.

It is still necessary to explain what the loan is intended for as well as your company’s type and its history, as as potentially providing the security required for larger loans but because a comprehensive business plan and a long-winded application aren’t always part of the arrangement, things can move faster.

Attention: Relationships, red flags and payments

If you have a good relationship with a bank’s managing director or another lender, you can speak with them about their application and lending process. Otherwise, your broker can guide you through the different lending requirements.

While many newer or non-bank lending institutions operate entirely online, some lenders like have a dedicated specialist in loan to guide you through the process of applying and get to know the needs of your business.

If you’re considering Non-Bank lenders look into independent reviews. If an offer appears too tempting to be real or when you are pre-approved before you’ve even made an application, or the lender is aggressive in their approach think about speaking with an adviser or broker and investigating further before signing up.

If you’re borrowing from a bank or non-bank lender, you’ll need to be aware of the conditions and be realistic about whether you’ll be able meet the payments. The most important thing to consider is making a list of the rules you’ll need to follow in deciding if business loans should be used to aid your business’s growth, to manage the seasonal changes in cash flow fluctuations, to make the most of opportunities to purchase stock in huge quantities, or for day-today operations and costs.