Traditional bank loans vs non-bank lenders

The decision to take a business loan for small businesses? The first decision is who to make an application with. Here’s a brief 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 short-term objective
• Who is able make the payments
• Know the terms and conditions associated with the loan – your adviser or broker is there to help if you have any questions.

If you’re willing to invest in the inventory, new equipment or technology or staffing, additional training or renovation, or even a new location that could take your small company to the next level If so, you may want to consider the advantages and disadvantages of taking on traditional bank loans versus dealing with an Non-Bank lender.

Online or bank?

Loans from banks

The brand reputation of a established bank can be regarded as solid or secure and can also give a 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 could be complex and lengthy, and require a level of paperwork that some smaller business owners might be limited by time to meet. The process may be faster if the bank has digital acces to your bank data - although banks aren’t widely considered to be data-savvy when it comes to small business loans, their capabilities are getting better.

As with all kinds of loans there is a possibility of lower interest rates may need to be considered alongside characteristics of loan products in order to select the best type of loan. As for the lender conventional banks could have strict guidelines as well as lengthy and complicated application processes as well as being inflexible.

With cash flow being so vital to the survival of many small-sized businesses, the distinction between a loan that could fund stock to sell in the near future, and the loan that is granted in the next month when seasonal demand is gone, could be the difference that makes or breaks a business.

Non-bank or online business loans

When a solid credit history and solid security are usually required for a bank loan, Non-Bank lenders could be more flexible with their approach. They also may offer more flexibility in structuring loans.

Non-Bank lenders are generally more technologically advanced than banks, which means applications can sometimes be accepted and processed quickly, and the funds can be made available by the next day, upon approval.

You’ll still have to provide details of what the loan is being used for, your business type and past history, as well as potentially providing security for loans that are larger, but because a comprehensive business plan and cumbersome applications aren’t required in every deal, things may move faster.

Beware of relationships, red flags, and repayments

If you have a good relationship with a bank’s management or an additional lender, you might discuss the lending process and their application. If not, your broker could help you navigate the different requirements of lenders.

Although many of the newer non-bank lenders are exclusively on the internet, some lenders offer a dedicated expert to guide you through the loan application process and to really understand your business needs.

If you’re considering non-bank lenders, check out independent reviews. If the offer you’re considering seems too good to be true or when you are pre-approved before you’ve even submitted an application or the lender seems aggressive in their approach you should talk to an adviser or broker and digging deeper before committing.

When borrowing from a bank or Non-Bank lender, it is important to be aware of the terms and whether you’re able to make the payments. The most important thing to consider is setting ground rules for yourself when deciding whether business loans are needed to help your business thrive by coping with seasonal fluctuations and fluctuations in cash flow, or to benefit from opportunities to buy inventory in huge quantities, or for the costs of running a business and day-to-day operations.