Non-bank lenders versus Traditional bank loans

The decision to take a business loan for small businesses? First, you must decide who to approach. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

The first thing to consider is small-business finance is typically a great option for business owners:

• With a clear plan for growth or a well-defined time-frame
• Who is able to make the repayments
• Who understand the terms and conditions with the loan – your broker or adviser is here to assist you with any questions.

If you’re ready to make an investment in the inventory, new equipment or technology as well as additional staff, training, renovation or new premises that will take your enterprise to the next step, then you might want to consider the pros and cons of taking on traditional bank loans versus dealing with an Non-Bank lender.

Online or bank?

Lending from banks

The reputation for a brand of established bank can be regarded as solid and secure as could the feeling of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The application process for bank loans can sometimes be complex and lengthy, and will require a certain amount of paperwork that some smaller businesses owners may be constrained by time to meet. The process might be speedier when the bank has electronic access to your financial data - while banks aren’t usually recognized for their data-savvy approach to small business loaning, the situation is getting better.

As with all kinds of loans, the possibility of lower interest rates will need to be considered along with attributes of the loan product in order to choose the most appropriate type of loan and lender conventional banks are likely to have strict criteria and lengthy application procedures, as well as being inflexible.

Cash flow is so crucial for the survival of many small enterprises, the gap between a loan today that can fund inventory to sell in the near future, and an offer for a loan in the next month when season’s peak is over, can be the difference between a successful or unsuccessful business.

Business online or non-bank loans

Where a strong credit history and solid security are usually necessary for obtaining an bank loan, Non-Bank lenders might be more flexible in their approach. They can also tend to have more flexibility in the way they structure loans.

Non-bank lenders are usually more digitally innovative than banks, so applications can sometimes be processed and approved quickly and funds are available within the next working day, following approval.

You’ll usually still need to explain what the loan is for the business’s name, type of business and its history, as being able to provide security for loans that are larger, however, because a comprehensive business plan and a long-winded application aren’t always part of the agreement, things could move faster.

Beware of relationships, repayments , and red flags

If you’re in a long-standing relationship with a bank’s managing director or another lender, you can talk to them about their lending and application process. Your broker may assist you with the different lending requirements.

Many of the more recent or non-bank lenders operate exclusively online, some lenders like have a dedicated expert 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 an offer seems too tempting to be real, such as the pre-approval you receive before you’ve even made an application, or the lender is extremely aggressive in their approach you should talk to a broker or adviser and digging deeper before signing up.

If you’re borrowing money from a bank or Non-Bank lender, it is important to be aware of the terms of the loan and realistic about how you’ll be able to meet the obligations. One important aspect to think about is setting ground rules for yourself - deciding whether you should use business loans to help your business thrive, to manage seasonal fluctuations, and fluctuating cash flows, or to benefit from opportunities to purchase inventory in huge quantities, or for the costs of running a business and day-to-day operations.