Non-bank lenders vs Typical bank loans

How do you choose a small business loan? The first step is deciding who to approach. Here’s a simple guide to the pros and cons of traditional lenders as well as Non-Bank lenders.

First of all, small business financing is usually a good option for business owners:

• With a clear plan for expansion or a clearly-defined time-frame
• Who will be able to pay the loan
• Who understand the terms and terms associated with the loan. Your adviser or broker will be there to help you with any concerns.

If you’re willing to make an investment in inventory, brand new equipment or technology and staffing, renovation or new premises that will take your company to the next level, then you might want to weigh up the pros and cons of taking out the traditional bank loan or working with a non-bank lender.

Are you a bank or an online lender?

Loans from banks

The brand reputation of a established bank can be regarded as solid or safe, as can the sense of security. New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same regulations.

The application for bank loans can be lengthy and complicated, and may require a large amount of paperwork that small business owners are limited by the time they have to complete. The process can be speedier when the bank has electronic access to your financial records - while banks aren’t usually recognized for their data-savvy approach to small business credit, but they’re becoming better.

Similar to any type of loan there is a possibility of lower interest rates might need to be considered alongside loan product features to decide on the best type of loan. As for the lender - loans from traditional banks are likely to have strict criteria and cumbersome applications processes and may not be flexible.

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

Non-bank or online business loans

When a solid credit history and solid security is often a must-have for the bank loan, non-bank lenders might be more flexible in their approach. They may also offer more flexibility when it comes to structuring loans.

Non-Bank lenders are generally more digitally innovative than banks, so applications are often processed and approved in a short time, with funds made available within the next day, upon approval.

It is still necessary to provide details of what the loan is intended for as well as your company’s type and background, as well possibly providing security for loans that are larger, but because a comprehensive business plan and cumbersome applications aren’t always part of the deal, the process could be faster.

Attention: Relationships, red flags and payments

If you have a strong relationship with a bank’s management or another lender, you could talk to them about their application and lending process. Your broker may assist you with the requirements of different lenders.

Although many of the newer non-bank lenders work exclusively on the internet, some lenders can provide 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, check out independent reviews. If an offer seems too promising to be true for instance, the pre-approval you receive before applying or if the lender seems extremely aggressive in their approach think about speaking with an adviser or broker and looking into the matter before signing on.

If you’re borrowing from a non-bank or bank lender, it is important to be aware of the terms and how you’ll be able to meet the obligations. One of the most important considerations is making a list of the rules you’ll need to follow in deciding if business loans should be used to help your business thrive in managing seasonal fluctuations and cash flow fluctuations, to make the most of opportunities to purchase stock in huge quantities, or for everyday expenses and operational costs.