Non-bank lenders versus Traditional bank loans

What is the best way to choose a small-business loan? The first thing to consider is which lender to go with. This is a quick 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 is able make the payments
• Who understand the terms and conditions with the loan. Your broker or adviser is here to help you with any questions.

If you’re willing to invest in inventory, brand new equipment or technology and staffing as well as a renovation or new building that can take your business to the next level If so, you may want to consider the advantages and disadvantages of taking on the traditional loan from a bank versus using a non-bank lender.

Bank or online lender?

Bank loans

The brand reputation of a long-standing bank can be seen as safe or solid in the sense of security. New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The process of applying for bank loans may be long and complicated and will require a certain amount of paperwork which some small businesses owners may be constrained in time to fulfill. The process could be quicker if the bank has digital acces to your bank data - even though banks aren’t well-known for their expertise in data-driven small business lending, they are getting better.

As with every type of lending the chance of lower interest rates will require consideration alongside loan product features to choose the most appropriate type of loan. The lender and the loan traditional bank loans could have strict guidelines and cumbersome applications processes and lack flexibility.

Since cash flow is crucial for the survival of many small businesses, the differences between a loan today that could fund stock to sell in the next day, and the loan that is granted next month after the season’s demand has ended can be the difference that makes or breaks a business.

Non-bank or online business loans

A credit score that is strong and solid security are usually necessary for obtaining an bank loan, Non-Bank lenders can be more flexible with their approach. They may also be more flexible in the way they structure loans.

Non-bank lenders are usually more digitally innovative than banks. This means applications can sometimes be processed and approved in a short time, with funds made available within the next dayafter approval.

You’ll usually still need to disclose the purpose of the loan is intended for along with your business’s nature and background, as well possibly providing the security required for larger loans but because a comprehensive business plan as well as a lengthy application aren’t always part of the arrangement, things can move quicker.

Beware of relationships, repayments , and red flags

If you have a good relationship with a bank’s management or another lender, you can talk to them about their application and lending process. If not, your broker could help you navigate the requirements of different lenders.

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

If you’re thinking of a loan from a Non-Bank lender take a look at independent reviews. If the offer you’re considering seems too good to be true, such as if you get pre-approval before applying, or the lender is very aggressive think about speaking with advisors or brokers and looking into the matter before signing up.

If you’re borrowing from a non-bank or bank lender, you’ll want to understand the terms and realistic about whether you can meet the loan repayments. A key consideration may be creating a set of rules for yourself in deciding if business loans are needed to support your business’s success by coping with the seasonal changes in cash flow fluctuations, to make the most of opportunities to buy inventory in large quantities, or to fund the costs of running a business and day-to-day operations.