What is the Difference Between a Bank and a Non-bank Lender Business Loan?

small business loan

The small business sector is a critical component of the Australian economy as it employs about 50% of the national workforce and contributes nearly 380 billion US dollars to the country’s GDP. That is why this sector is often referred to as the ‘engine room’ of the economy.

And just like any other engine room out there, this sector needs enough fuel to keep it running and to also accelerate it. Despite being an important part of the economy, the growth of the small business sector is often hindered by poor access to capital.

This is what has contributed to most of the failures in this sector. Banks are often reluctant to lend to small businesses particularly when a small business owner does not have bricks and mortar security – especially if the business owner wants to borrow money short-term. Banks usually want borrowers to have a strong track record of meeting financial obligations.

However, most new business owners cannot demonstrate a good credit score as the business does not have an established credit history or proof of earnings. What’s more, a small business with a track record of paying its bills on time could have its loan application rejected if the owner’s personal history is not squeaky clean.

ALSO READ: An Introduction To Startup Business Loans


bank lender

To make matters worse, the bank loan approval process can take weeks. During this process, the borrower is required to fill out onerous forms and present a business plan stating how he or she will use the funds he or she is borrowing. The things we have just mentioned make it hard for small businesses to access the capital they need in order to capitalise on a golden opportunity or during tough trading periods.

The good news is that the emergence of credible non-bank lenders has given small businesses a much-needed lifeline, especially those businesses looking for short-term loans i.e. loans lasting a few months to a few years. The best thing about non-bank lenders is the fact that they can process a loan quickly, usually within 24 hours. This means that a small business owner can apply for a small business loan with little security and minimal paperwork and usually get the loan approved on the same day.

So, the big question is: when should a business owner borrow from a bank and when is it ideal for him or her to borrow from a non-bank lender? Borrowing from a bank can be ideal for a business owner of an established business with the necessary security such as residential property, commercial property and land as he or she will be able to get a lower interest loan. This is the case especially when the business owner’s loan plans are not time sensitive.

small business loan

On the other hand, borrowing from a non-bank lender can be ideal for a business owner who needs fast short-term finance but is not able to secure a loan from the bank because of a poor credit rating or little to no financial history.

Regardless of the type of lender you choose, it is important for the business owner to only borrow an amount in which they know they can comfortably service. A business owner should always be aware of the fact that defaulting on a loan can not only jeopardise the business but can also have a negative impact on the owner’s personal situation.

Conducting extensive research into the loan options available can help a business owner avoid making wrong decisions. This can help you determine the best non-bank lender to meet your needs. Choosing between a non-bank lender and a bank or even choosing to forego a loan altogether depends on the business’s financial situation and the needs of the business. After all, different engines need different kinds of fuel.

This is where LoanOne can help. LoanOne is a non-bank lender and is one of the fastest growing financial companies in Australia. We offer both personal and business loans with competitive rates to different industries. Our loans are fast, flexible and can be tailored to both your personal or business needs. Please click here to apply now!