Non-Bank lenders can often deliver increased funding limits and speed all critical to growth.
Understanding the differences between how banks assess loans and how alternative lenders lend money based on a different set of rules is not something business owners have time to learn. You need to remember that before there were banks there were private lenders, merchants and traders some of which date back over 4,000 years.
Today there are private individuals as lenders, wholesale funders, pooled investment schemes, peer-to-peer, contributory, subscription based loan funds and even alternatives lenders that have sourced their funds to on-lend from banks.
Of course, there are good lenders and not so good lenders. Sitting just under bank loans is a vast honey pot of lenders that are actively seeking to lend out their funds to business owners and all have varied criteria, loan structures (such as fixed term, revolving etc) and payback methods, all of which need to be considered.
It should be stressed that due to the increased popularity of business lending as a whole, some lenders are only mildly more expensive than a bank overdraft and again more factors are involved in how these loans are priced depending on the type of security required. It’s simply cheaper to access funds if you pledge your property and more expensive if you don’t.
Due to the popularity building in this space we are seeing some healthy competition emerging with rates and fees becoming more attractive for businesses looking for a flexible loan facility without extensive red tape and lengthy application processes. You’ll still need to pass some tests and you should always focus on understanding the true cost to your bottom line and if the lenders product fits your cash flow cycle.
Below are our top 7 reasons why you should consider using a non-bank lender :
Simplified application process
Lender applications are almost always cut down to only ask for the information that relates to their lending criteria. With most lenders only interested in the asset or cash flow they will be lending on. There is no need to go into depth surrounding long historical views of the business trading history or the Director/s personal credit health. When applying to a lender it will be unlikely to experience the same red tape and lengthy list of information required from a banking facility.
We’re now living in a world of online applications, with some lenders offering the whole setup online without submitting any paperwork at all to obtain a real offer. If this is your first time seeking funds then you’ve never had it so good and would be shocked to go through an offline lengthy paper application that lenders then process manually, taking weeks to make decisions that new lenders have built specific software to process in real-time.
No regular audits
Non-Bank’s are always specialised in the type of asset or business they lend money to. They deal with these types of assets every day so the need for external audits every quarter is highly unusual. This results in a significant reduction in costs for the borrower with some monthly or quarterly audits costing up to $5,000.
Diversify your lender risk
In most circumstances when you take a business loan from a bank they will place a blanket security over your entire business even if you’ve pledged your property. In this case, the bank has your property and your business assets tied up and can prevent you from borrowing further funds against the business. Some banks will work with lenders to release specific security however, you should be cautioned that it’s likely you will run into a road block when raising further funding. We highly recommend negotiating with the bank prior to taking funding to allow releases (easier said than done, we know).
Taking a non-bank option can alleviate these issues, you have flexibility to negotiate the type of security and more importantly prevention of wrapping up all your assets. In most circumstances allowing a non-bank lender in can be more expensive however, you diversify and separate your risk against personal assets that can be used later on to raise further funds when required.
Flexible credit limits
Have you ever approached the bank to ask for an increase in your loan? Non-Bank’s always have a very close relationship with how their borrowers are performing. Some lenders review their accounts every day or week. When you ask for an increase in loan size it’s usually as simple as picking up the phone or sending an email with a yes or no answer coming through straight away. If it’s a ‘no’ you will most likely be told how you can get a ‘yes’. Most lenders will be very flexible with borrowers who are easy to deal with and take the time to follow processes correctly.
Single points of contact
When you begin your relationship with the lender there is always a salesperson, followed by operations staff such as a relationship manager or client manager. Once you’re taken on you have a single point of contact for your day to day account enquiries. You have the freedom of speaking with the client manager or simply asking to speak with a director if they felt they weren’t getting the right answers. Getting through to key decision makers for time critical answers can have a dramatic impact on your businesses day to day operation. There’s nothing worse than requesting loan advances and it taking days to get results.
Poor Credit history allowances
We’ve all grown up being told that your credit history is the most important thing to keep clean. In life, there are no guarantees and sometimes in business you can’t help but be affected by a customer that doesn’t pay that large invoice, tax bills get out of control or you simply grew too quickly and suppliers weren’t paid on time. Non-Bank’s work so closely with businesses every day that they understand when things don’t go according to plan. They make allowances for these poorer credit clients taking into account the type of business you’re in, assets and potential growth opportunities instead of past rough patches. Loan approvals come through thick and fast for borrowers who lay it all on the table and start the conversation truthfully if they’ve run into past hiccups.
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