Non-bank lenders versus Traditional bank loans

The decision to take a business loan for small businesses? The first decision is who to approach. Here’s a brief guide to the advantages and disadvantages of traditional lenders and Non-Bank lenders.

First of all, small business financing typically suits business owners:

• With a clear plan for expansion or a clearly-defined short-term goals
• Who can make the repayments
• Who understand the terms and conditions with the loan – your adviser or broker is there to assist 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 can take your business to the next stage You may want to consider the advantages and disadvantages of taking on the traditional bank loan or taking on a Non-Bank lender.

Online or bank?

Bank loans

The brand reputation of a long-standing bank can be seen as safe or solid, 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 loan application process for bank loans can sometimes be long and complicated and requires a lot of paperwork which some small business owners might be limited by time constraints to meet. The process can be speedier if the bank has digital ability to access your personal financial data - even though banks aren’t known for being data-savvy in small business credit, but they’re becoming better.

As with all kinds of loans it is possible that lower interest rates may require consideration alongside characteristics of loan products to choose the most appropriate type of loan and lender conventional banks might have strict requirements and cumbersome application processes, and lack flexibility.

With cash flow being so vital to the survival of a lot of small businesses, the differences between a loan granted today that could fund stock to sell in the next day, and a loan in the next month when the season’s peak is over, can be the difference that makes or breaks a business.

Non-bank or online business loans

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

Non-bank lenders are usually more digitally innovative than banks, so the applications may be processed and approved quickly and funds are available within the next dayafter approval.

You’ll usually still need to explain what the loan is intended for, your business type and past history, as well in the event of providing security for larger loans, but because a comprehensive business plan and a long-winded application aren’t required in every deal, the process could be quicker.

Check out these relationships: repayments and red flags

If you have a strong relationship with a bank’s managing director or another lender, you could contact them regarding the process of applying for loans and obtaining approval. If not, your broker could help you navigate the different lending requirements.

Many of the more recent or non-bank lenders work exclusively online, some lenders can assign a expert to guide you through the process of applying and get to know the requirements of your company.

If you’re considering Non-Bank lenders, check out independent reviews. If the offer you’re considering seems too promising to be true for instance, getting pre-approval prior to applying, or the lender is uncompromising 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 bank or Non-Bank lender, you may want to know the conditions and be realistic about whether you’re able to make the obligations. A key consideration may be setting the ground rules for your business in deciding if the business loan should be utilized to boost your business’s performance by coping with seasonal fluctuations and fluctuations in cash flow, to take advantage of opportunities to purchase stock in large quantities, or to fund everyday expenses and operational costs.