Typical bank loans versus non-bank lenders

The decision to take a business loan for small businesses? The first step is deciding who to go with. Here’s a simple guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

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

• With a clear path for expansion or a clearly-defined time-frame
• Who is able make the payments
• Who understand the terms and conditions with the loan – your advisor or broker is available to help if you have any questions.

If you’re looking to make an investment in the inventory, new technology or equipment as well as additional staff, training, renovation or new premises that can take your business to the next level If so, you may want to weigh the advantages and disadvantages of taking out the traditional loan from a bank versus dealing with an Non-Bank lender.

Are you a bank or an online lender?

Bank loans

The reputation of a long-standing bank can be seen as solid or safe, as can the sense of security. 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 could be long and complex, and require a level 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 acces to your bank records - even though banks aren’t known for being data-savvy in small business lending, they are getting better.

Similar to all kinds of loans the chance of lower interest rates will need to be considered along with the features of the loan product to determine the most appropriate kind of loan. Likewise, lenders traditional bank loans may have strict criteria and cumbersome application processes, and are not flexible.

With cash flow so critical to the survival of many small-sized businesses, the distinction between a loan that can fund inventory to sell in the next day, and a loan granted in the next month when season’s peak is over, can be the difference between making or breaking.

Business online or non-bank loans

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

Non-bank lenders are usually more digitally innovative than banks. This means applications are often processed and approved in a short time, and funds are available within the next day, upon approval.

You’ll still have to give details about what the loan is being 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, however, since a thorough business plan and cumbersome applications aren’t always part of the deal, the process could be more quickly.

Beware of relationships, repayments and red flags

If you’ve established a solid relationship with a bank’s managing director or another lender, you could contact them regarding the lending process and their application. Your broker may guide you through the various requirements of lenders.

Many newer and non-bank lenders work exclusively online, certain lenders can provide a dedicated loan specialist to guide you through the application process and to really understand your business’s needs.

If you’re considering Non-Bank lenders take a look at independent reviews. If the offer you’re considering seems too appealing to be true or if you get pre-approval before you’ve even made an application or the lender seems extremely aggressive in their approach take a look at speaking with an adviser or broker, and examining the details before committing.

When borrowing from a bank or a Non-Bank lender, you’ll want to be clear about the terms and whether you’ll be able meet the payments. One of the most important considerations is creating a set of rules for yourself - deciding whether business loans are needed to support your business’s success by coping with seasonal fluctuations and fluctuations in cash flow, to profit from opportunities to purchase inventory in bulk, or to cover daily expenses and operations.