Non-bank lenders versus Traditional bank loans

How do you choose a small business loan? The first step is deciding who to approach. Here’s a simple guide to the pros and cons of traditional lenders and Non-Bank lenders.

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

• With a clear roadmap for expansion or a clearly defined short-term goals
• Who is able to make the repayments
• If you are aware of the terms and conditions associated with the loan. Your adviser or broker will be there to assist you if you have any questions.

If you’re willing to invest in the inventory, new technology or equipment and staffing and renovations or even new premises that can take your business to the next stage You may want to consider the pros and cons of taking on a traditional bank loan versus using a non-bank lender.

Are you a bank or an online lender?

Loans from banks

The reputation of a long-established bank can be considered safe or solid and can also give a sense of security. New Zealand banks are registered with the Reserve Bank of New Zealand and are subject to the same rules.

The application process for bank loans can be long and complicated and require a level of paperwork that small business owners are limited by time constraints to meet. The process may be faster in the event that the bank has digital ability to access your personal financial records even though banks aren’t considered to be data-savvy when it comes to small-business loans, their capabilities are getting better.

As with any type of loan there is a possibility of lower interest rates might be considered in conjunction with attributes of the loan product in order to choose the most appropriate kind of loan. As for the lender traditional bank loans are likely to have strict criteria and cumbersome applications processes and lack flexibility.

With cash flow so critical to the survival of many small businesses, the difference between a loan today that could be used to fund the sale of stock tomorrow, and the loan that is granted in the next month when season’s demand has ended can be the difference between making or breaking.

Business online or non-bank loans

When a solid credit history and solid security are usually a must-have for the bank loan, non-bank lenders could be more flexible in their approach. They can also tend to have greater flexibility in the way they structure loans.

Non-Bank lenders are generally more digitally innovative than banks, so the applications may be processed and approved in a short time, with funds made available within the next day, upon approval.

You’ll still have to provide details of what the loan is intended for as well as your company’s type and background, as well possibly providing security for loans that are larger, but because a comprehensive business plan and a long-winded application aren’t required in every deal, things may move quicker.

Attention: Relationships, repayments and red flags

If you have a strong relationship with a bank manager or another lender, you could discuss the process of applying for loans and obtaining approval. Otherwise, your broker can assist you with the requirements of different lenders.

While many newer or non-bank lenders operate exclusively online, certain lenders offer a dedicated loan advisor to help you through the application process and really get to know the requirements of your company.

If you’re thinking about Non-Bank lenders take a look at independent reviews. If an offer seems too promising to be true, such as if you get pre-approval before you’ve even applied or if the lender seems very aggressive you should talk to an adviser or broker, and looking into the matter before signing up.

If you’re borrowing money from a non-bank or bank lender, you may want to be aware of the terms and realistic about whether you can meet the loan repayments. One of the most important considerations is setting ground rules for yourself in deciding if business loans are needed to aid your business’s growth, to manage seasonal fluctuations and fluctuating cash flows, or to benefit from opportunities to buy inventory in bulk, or to cover everyday expenses and operational costs.