July 11, 2023 4:05 PM

myths vs. reality: the truth about getting a business loan from a non-bank lender

For many business owners, getting a loan from a traditional bank can be a daunting and challenging process. In contrast, non-bank lenders can provide funding to businesses with a fast and simple application process and a wide range of products that truly meet SMEs' financing needs. These non-bank lenders have become increasingly popular over the years, but there are many myths and misconceptions about the lending process that can cause confusion.

In this blog post, we'll explore the myths and realities of getting a business loan from a non-bank lender. We'll examine the common myths and misconceptions, the benefits of getting funding from a non-bank lender, and how to choose the right lender. Keep reading to learn more.

common myths & misconceptions about non-bank lending

Non-bank lenders play a vital role in supporting Australian SMEs to grow. But despite their growth in recent years, some common myths and misconceptions persist. These myths and misconceptions typically centre around trustworthiness, interest rates, and the lending products available. Given over two-thirds of SMEs need faster access to capital, non-bank lenders are well-placed to make this possible. Below are some of the common myths and misconceptions about non-bank lending and why they’re false.

non-bank lenders aren’t legitimate financial institutions 

There’s a general misconception that non-bank lenders aren’t legitimate and engage in fraudulent practices. However, non-bank lenders are regulated under the Australian Securities and Investments Commission (ASIC) and businesses must still fit the lender’s loan suitability and credit assessment requirements. The key difference between banks and non-bank lenders when it comes to assessing credit is that the suitability requirements tend to be tailored to the nuances of operating an SME rather than the stock-standard assessment framework that banks use. For example, a business loan applicant through an SME lender will still need to demonstrate proof of its operating history, turnover, and cash flow projections but may be able to find financing options where personal collateral, such as the family home, isn’t required to secure the funding.

there are limited product options available & it’s a last resort

The ease, speed and flexibility that non-bank lenders provide actually make non-bank lending the first option that some SMEs choose when they are looking to secure finance. Not only do traditional lenders take up to 90 days to process an application and fund a loan, but they also offer a limited range of debt products, such as a traditional secured bank loan or line of credit. In contrast, non-bank lenders offer a range of financing solutions, including trade finance, debtor finance, line of credit, equipment finance, and term loan finance. Having a larger range of financing options available allows SMEs to better align their repayments with cash flow that may be generated from the financing facility. Further, it’s easier to scale your finance facilities as your business grows compared to traditional channels where additional collateral may be required.

non-bank lenders charge exorbitant interest rates

There’s a general misconception that non-bank lenders charge rates and fees that are unaffordable for SMEs. While the interest rate charged may be slightly higher than a bank loan (on average 270 basis points higher than the rate charged by banks), the wide range of product availability, flexibility, and ability to secure finance without risking personal assets as security outweigh the downside of higher rates for many SMEs.

non-bank lending is too risky

Warehouse facilities for non-bank lenders are typically sourced through Australian banks, private credit, and institutional investors. For those warehouses funded through the banks, the non-bank lender must fit the lending standards for loans originated through their facilities. The current value of warehouse and funding facilities to non-banks in Australia is just under $100 billion, with around $70 billion drawn. Further, non-bank business credit growth reached an annual growth rate of 25 per cent in early 2023, indicating that non-bank lenders are a growing and increasingly viable option for SMEs seeking the financing they need to grow.

the benefits of non-bank loans

There are a range of benefits that non-bank loans offer business customers. These benefits differ from the stock-standard credit assessment criteria and limited product offerings through traditional channels, which don’t meet the nuanced financing requirements of SMEs. Non-bank lenders typically have strong technology infrastructure, which makes the application and assessment process simple and easy. For example, applicants can use smart integrations to submit their trading history and turnover details, which allows the non-bank lender's credit assessment engine to work within minutes. From here, by working with a dedicated lending expert, a business can get a solution that’s tailored to their unique needs. Further, with the ability to get funding within days (not months) and more flexible loan terms, such as no penalties for early repayment or the ability to scale the funding facility as required, non-bank lenders have the same nimble nature as SMEs allowing them to better serve their current and future financing needs.

how to find a reputable non-bank lender

Non-bank lenders are a vital part of business lending in Australia, providing much-needed competition and more flexible funding solutions. However, not all non-bank lenders are the same, so it’s important to do your research and make sure you choose a good finance broker. A good finance broker should take the time to understand your business and be able to provide you with extensive information about your financing options and the associated risks. When you are researching non-bank lenders, make sure you check the lender has proper licensing, look for online reviews of the business, and compare multiple loan options to make sure you’re not only getting competitive interest rates but you’re able to access a range of lending products that meet your unique needs.

get the finance you need with moneytech

There are a lot of misconceptions out there about getting a business loan through a non-bank lender. However, if you do your research and work with an expert who understands the nuances of lending to Australian SMEs, you’ll be in a good position to secure the funding you need without the headaches of going through a traditional lender. Not only can getting finance through a non-bank lender allow you to better align your cash flows with your financing needs, but you can also get the cash flow boost you need without taking on unnecessary debt. Moneytech makes this possible for SMEs of all sizes across a range of industries by working closely with them through every step of the application and financing process.

With finance facilities from $50,000 up to $2,000,000 (depending on the financial product), Moneytech makes accessing the cash flow required for growth simple and efficient. Whether your business is looking to release capital from customer invoices to cover regular expenses or you want a cash flow boost to fund your next growth phase, we can help. Contact us today, and one of our experts will be in touch to discuss your options.

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This article is for information purposes only and does not constitute financial advice. You should speak to a qualified finance professional about your unique situation before making any decisions about financial products.

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