Choosing a small business loan? The first decision is who to apply with. Here’s a simple guide to the pros and cons of traditional lenders and Non-Bank lenders.

First up, small business financing usually suits business owners:

• With a clear roadmap for growth or a well-defined short-term goal
• Who can make the repayments
• Who understand the terms and conditions associated with the loan – your broker or adviser is here to help if you have any questions.

If you are ready to make an investment in the inventory, new equipment or technology, extra staff, training, renovation or new premises that could take your small business to the next level, then you might want to weigh up the pros and cons of taking on a traditional bank loan versus dealing with an Non-Bank lender.

Bank or online lender?

Bank loans

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

The loan application process for bank loans can sometimes be long and complex, and require a level of paperwork that some small businesses owners may be constrained by time to meet. The process may be faster if the bank has digital access to your financial records – while banks aren’t generally known for being data-savvy in small business lending, they are getting better.

As is the case with all types of lending, the possibility of lower interest rates may need to be considered alongside loan product features to decide on the most suitable type of loan and lender – loans from traditional banks may have strict criteria and cumbersome application processes, and lack flexibility.

With cash flow so critical to the survival of many small businesses, the difference between a loan today that could fund stock to sell tomorrow, and a loan granted next month when the seasonal demand is over can be make or break.

Online or non-bank business loans

Where a strong credit history and solid security are often a must-have for a bank loan, Non-Bank lenders may be more flexible in their approach. They can also tend to have more flexibility when it comes to structuring loans.

Non-Bank lenders are often more digitally innovative than banks, which means applications can sometimes be processed and approved quickly with funds made available within the next day, upon approval.

You’ll usually still need to provide details of what the loan is for, your business type and history, as well as potentially providing security for larger loans, but because a comprehensive business plan and cumbersome applications aren't always part of the deal, things may move faster.

Heads up: relationships, repayments and red flags

If you have a strong relationship with a bank manager or another lender, you could speak with them about their application and lending process. Otherwise, your broker can help you navigate the requirements of different lenders.

While many newer or non-bank lenders operate exclusively online, some lenders like Prospa can provide a dedicated loan specialist to guide you through the application process and really get to know your business needs.

If you’re considering Non-Bank lenders, check out independent reviews. If an offer seems too good to be true, such as if you get pre-approval before you’ve even applied, or the lender is aggressive in their approach, consider speaking to a broker or adviser and digging deeper before signing on.

Whether you’re borrowing from a bank or Non-Bank lender, you may want to be clear about the terms and realistic about whether you can meet the repayments. A key consideration may be setting ground rules for yourself – deciding whether business loans should be used to help your business thrive, to manage seasonal ups and downs and cash flow fluctuations, to take advantage of opportunities to purchase stock in bulk, or to cover day-today operations and costs.