Typical bank loans vs non-bank lenders

Choosing a small business loan? The first step is deciding who to make an application with. This is a quick guide to the pros and cons of traditional lenders and Non-Bank lenders.

First , small-scale business financing usually suits business owners:

• With a clear path for expansion or a clearly defined short-term goals
• Who will be able to pay the loan
• You are aware of the terms and terms associated with the loan. Your broker or adviser is here to assist you if you have any concerns.

If you’re willing to make an investment in inventory, brand new technology or equipment or staffing, additional training, renovation or new premises which could help take your small enterprise to the next step and beyond, then you should to consider the advantages and disadvantages of taking out traditional bank loans versus taking on a Non-Bank lender.

Do you prefer a lender online or a bank?

Lending from banks

The reputation of a long-established bank can be considered solid and secure in the sense of security. New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The application for bank loans could be long and complex, and require a level of paperwork that some smaller business owners might be limited by time to meet. The process could be quicker when the bank has electronic access to your financial data - even though banks aren’t well-known for their expertise in data-driven small-business lending, they are getting better.

As is the case with all types of lending there is a possibility of lower interest rates will need to be considered alongside attributes of the loan product in order to choose the most appropriate type of loan. The lender and the loan - loans from traditional banks might have strict requirements and cumbersome applications processes and are not flexible.

With cash flow being so vital to the survival of many small businesses, the difference between a loan granted today that could fund stock to sell in the next day, and the loan that is granted next month , when the season’s demand has ended can be make or break.

Business online or non-bank loans

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

Non-bank lenders are usually more innovative in their digital technology than banks, so that applications are sometimes completed and approved swiftly, with funds being available within the next dayfollowing approval.

You’ll usually still need to give details about what the loan is being used for, your business type and history, as well possibly providing the security required for larger loans but since a complete business plan and lengthy applications aren’t required in every deal, things may move quicker.

Beware of relationships, repayments and red flags

If you have a strong relationship with a bank’s management or another lender, you can talk to them about the process of applying for loans and obtaining approval. In other cases, your broker will guide you through the different lending requirements.

Many of the more recent or non-bank lenders work exclusively online, some lenders like offer a dedicated loan specialist to guide you through the process of applying and to really understand your business 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, such as if you get pre-approval before you’ve even made an application, or the lender is very aggressive, consider speaking to an adviser or broker and investigating further before committing.

Whether you’re borrowing from a bank or non-bank lender, you’ll want to understand the terms of the loan and realistic about how you’ll be able to meet the loan repayments. One important aspect to think about is setting ground rules for yourself and deciding if business loans are needed to support your business’s success and to handle seasonal ups and downs and fluctuations in cash flow, to benefit from opportunities to buy inventory in large quantities, or to fund day-today operations and costs.