Non-bank lenders vs Traditional bank loans

How do you choose a small business loan? The first thing to consider is which lender to approach. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First up, small business financing typically suits business owners:

• With a clearly defined plan of expansion or a clearly-defined time-frame
• Who can make the repayments
• If you are aware of the terms and conditions that come with the loan – your broker or adviser is here to help if you have any questions.

If you’re ready to invest in inventory, new technology or equipment, extra staff, training, renovation or new premises that will take your business to the next stage and beyond, then you should to consider the pros and cons of taking out traditional bank loans versus taking on a Non-Bank lender.

Bank or online lender?

Credit from banks

The reputation of a established bank can be regarded as solid and secure as could the feeling of security. 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 may be long and complex, and may require a large amount of paperwork that small businesses owners may be constrained in time to fulfill. The process can be speedier when the lender has digital access to your financial records - although banks aren’t widely considered to be data-savvy when it comes to small business credit, but they’re becoming better.

As is the case with all types of lending the chance of lower interest rates might need to be considered along with loan product features to choose the most suitable type of loan. Likewise, lenders traditional bank loans might have strict requirements and cumbersome application processes, as well as being inflexible.

Since cash flow is crucial for the survival of many small-sized businesses, the distinction between a loan today that can be used to purchase stock in the near future, and the loan that is granted next month after the seasonal demand is gone, could be make or break.

Online or non-bank business loans

When a solid credit history and solid security are often essential for the bank loan, non-bank lenders can be more flexible in their approach. They could also have greater flexibility in structuring loans.

Non-bank lenders are typically more innovative in their digital technology than banks, meaning applications are often processed and approved quickly with funds made available within the next day, upon approval.

It is still necessary to explain what the loan will be used for, your business type and past history, as well in the event of providing the security required for larger loans but since a complete business plan as well as a lengthy application aren’t always part of the deal, things may move quicker.

Check out these relationships: repayments and red flags

If you have a strong relationship with a bank manager or another lender, you could speak with them about their application and lending process. In other cases, your broker will assist you in understanding the various requirements of lenders.

Many of the more recent or non-bank lenders are exclusively online, some lenders have a dedicated loan advisor to help you through the loan application process and truly get to know the needs of your business.

If you’re considering Non-Bank lenders, check out independent reviews. If the offer you’re considering seems too good to be true for instance, the pre-approval you receive before you’ve even applied or if the lender seems aggressive in their approach think about speaking with an adviser or broker, and examining the details before signing on.

If you’re borrowing money from a bank or non-bank lender, you may want to understand the terms of the loan and realistic about whether you can meet the obligations. One important aspect to think about is setting ground rules for yourself in deciding if business loans are needed to aid your business’s growth, to manage seasonal fluctuations and fluctuations in cash flow, to benefit from opportunities to buy stock in massive quantities, or to pay for everyday expenses and operational costs.