Standard bank loans versus non-bank lenders

What is the best way to choose a small-business loan? The first step is deciding who to go with. This is a quick guide to the pros and cons of traditional lenders and Non-Bank lenders.

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

• With a clearly defined plan of expansion or a clearly-defined time-frame
• Who can make the repayments
• Who understand the terms and conditions with the loan – your broker or adviser is here to assist you if you have any concerns.

If you’re looking to invest in the inventory, new equipment or technology or staffing, additional training as well as a renovation or new building which could help take your small business to the next stage and beyond, then you should to weigh up the advantages and disadvantages of taking out traditional bank loans versus using a non-bank lender.

Are you a bank or an online lender?

Lending from banks

The reputation of a long-established bank can be considered solid or secure in the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The loan application process for bank loans may be complex and lengthy, and requires a lot of paperwork that some small business owners are limited by time constraints to meet. The process may be faster if the bank has digital acces to your bank records - while banks aren’t usually recognized for their data-savvy approach to small-business loans, their capabilities are getting better.

Similar to all kinds of loans, the possibility of lower interest rates will be considered in conjunction with loan product features in order to select the most appropriate kind of loan. The lender and the loan - loans from traditional banks might have strict requirements and cumbersome application processes, and are not flexible.

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

Online or non-bank business loans

A credit score that is strong and solid security are typically essential for the bank loan, non-bank lenders might be more flexible in their approach. They may also have greater flexibility in the way they structure loans.

Non-Bank lenders are generally more digitally innovative than banks, meaning that applications are sometimes completed and approved swiftly, with funds being available within the next day, upon approval.

You’ll usually still need to explain what the loan is intended for, your business type and past history, as well being able to provide security for bigger loans, but because a comprehensive business plan and cumbersome applications aren’t always part of the arrangement, things can move quicker.

Check out these relationships: red flags, and repayments

If you’re in a long-standing relationship with a bank’s manager or another lender, you could talk to them about the lending process and their application. If not, your broker could help you navigate the different lending requirements.

Many of the more recent or non-bank lending institutions operate entirely online, some lenders like can assign a specialist in loan to guide you through the loan application process and to really understand the requirements of your company.

If you’re considering Non-Bank lenders look into independent reviews. If you think an offer is too tempting to be real like if you get pre-approval before you’ve even submitted an application or if the lender appears uncompromising in their approach think about speaking with a broker or adviser and investigating further before committing.

When borrowing from a bank or a Non-Bank lender, you’ll need to be clear about the conditions and be realistic about whether you’ll be able meet the payments. The most important thing to consider is making a list of the rules you’ll need to follow - deciding whether you should use business loans to aid your business’s growth in managing seasonal fluctuations, and fluctuating cash flows, or to benefit from opportunities to buy stock in massive quantities, or to pay for daily expenses and operations.