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Bank vs. Non-Bank Lenders

So, your business is travelling along nicely and you think it’s a good time to take out a loan to keep things growing steadily, or maybe even to expand. Where do you start looking?

Well, between interest rates, APRs, repayment schedules and securing assets for collateral that can be a tough question. One of the first decisions you will have to make in your loan process is whether you are going to apply with a bank or non-bank lender.

Both options have their pros and cons, so, to make it a bit easier for you, we’re going to try and break down the main differences:

Non-Bank Lenders

Non-bank lenders are typically smaller than their bank counterparts and so they usually can’t offer the same level of funding that a big bank could. However, while they don’t have the sheer resources that one of the big-four banks would, non-bank lenders do have their benefits:

  • Usually have less stringent lending criteria than big banks so the likeliness of being approved is sometimes higher.
  • Tend to have no or low set up and ongoing fees.
  • Offer a more personalized customer service experience and are more flexible in meeting particular needs or specific requirements.
  • Shorter repayment terms.
  • Faster application and funding process which can be done entirely online and over the phone.

Additionally, most non-bank lenders have a much quicker loan process than bigger banks. In some cases non-bank lenders (like Moula) are able to approve a loan and have funds transferred within a day or two rather than several weeks. Most non-bank lenders also offer unsecured finance options, which are typically a better fit for smaller businesses. Most non-bank lenders also typically have shorter repayment periods. At Moula, you can select a repayment period of anywhere from 6 to 12 months. SMEs looking for a small, quick injection of cash will tend to favour non-bank lenders.

Traditional Bank Lenders

Because of their size and resources, many traditional banks will offer a variety business finance options. Banks are generally more established than non-bank lenders and that does come with some advantages:

  • Banks have an extra level of regulation under the Australian Prudential Regulatory Authority (APRA), providing an additional layer of security.
  • Ease of access – if you already have an account with a bank lender. You may find it easier to manage all of your finances under the same branch.
  • Higher potential funding amount and longer repayment terms.

Banks do have their drawbacks, however. Because they are such big institutions, a bank’s customer service and application process can take a lot longer in some cases and be more impersonal. Additionally, banks will often require collateral for even smaller loans, which can be difficult for small businesses. Overheads can often be more expensive too; these costs are often reflected in their establishment and ongoing fees.

However, if you are a larger business looking for a larger loan, then a bank may be a better option. Many non-bank lenders will have a lending ceiling of anywhere between $250,000 to $250,000 – some will go as high as $1 million but will often only issue secured loans. So, if your business is looking for a loan of anything more than that, a bank may be your only option. The flip side of this however, is that if you have a small business and are looking for a smaller loan, most banks won’t even give you the time of day. Many banks have a loan minimum of about $10,000, so if your business is in need of a loan under that, then a bank probably isn’t worth your time. 

In a nutshell, non-bank lenders, like Moula, have been built to cater to small business. Our small business loans are quick and flexible, plus we don’t require collateral, instead we analyse your business’ accounting data online. If you have any questions or want to know more about our business loans, contact us today.

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Business content for Australian SMEs. Sharing guides, growth hacks, and expert tips on finance, sales and marketing, and tech.

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