Looking for better rates and more flexible terms on a business loan? See what non-bank lenders have to offer.
Non-bank lenders often provide businesses with added flexibility as they’re privately-owned institutions that aren’t subject to the confinements of a banking license. They also get their funding from numerous sources that offer better flexibility and options, making non-bank business loans increasingly preferable among American businesses.
If you’re thinking about financing, limiting your options to regular banks could cost you. Your business deserves to know all the options available, especially if these options can provide you with better rates, fees, loan terms and even customer service.
Compare a range of non-bank business loans
What types of non-bank business loans are available?
- Line of credit. A business line of credit provides ongoing access to funds and allows you to withdraw funds up to a maximum limit. As you pay back the loan, you regain access to your full limit.
- Unsecured loan. This type of loan doesn’t require you to attach assets as security for your lender. It’s usually a fixed term loan with a predictable repayment schedule.
- Secured loan. This type of loan requires you to attach assets as security for your lender. It could be a term loan or a line of credit. One common type of secured business loan is a business equity loan which uses the equity you own in a property as security.
- Peer-to-peer business loan. This loan is funded by an individual investor through an online marketplace.
- Short term business loan. This is an up-front lump-sum loan with a fixed repayment schedule and loan terms usually under one year.
How to find the best non-bank business loan for you
There is no one “best” business loan on the market, as it will depend on your particular situation. However, keep the following in mind when comparing your options:
- Can my business afford it? As the most important factor in your decision making, be well aware of all loan costs as well as your repayment ability over the next few months.
- What’s the interest rate? Make sure you know the difference between fixed and variable interest rates and how they can impact your business. Also be cautious of variable interest rates that exceed your repayment ability.
- What’s the APR? This combines the loan’s interest rate, fees and other charges into one single percentage to help you better compare your options.
- What are the fees? Be aware of one-off fees such as application fees, exit fees and termination fees. Other charges include ongoing fees such as service and advance fees.
- How will I repay the loan? Lines of credit don’t have fixed repayment terms, but lump-sum term loans do and will usually cost you the loan amount plus interest over the loan’s term. Also keep in mind that lenders are usually more flexible with repayments for business loans than personal loans, so check your lender’s repayment terms before applying.
- Secured or unsecured? The difference between a secured and unsecured loan is huge, with one requiring you to put up assets as collateral for the lender while the other loan type has no collateral requirement (usually meaning higher rates). The right choice depends on your particular situation.
Pros and cons of borrowing from non-bank lenders
- Flexible rates. Non-bank lenders are privately-owned institutions, which enables them to be flexible with rates and fees.
- Customer service. Non-bank lenders usually have better customer service than regular banks. This includes better service, better communication and quicker decision-making.
- Fewer loan requirements. Generally, non-bank lenders have fewer loan requirements than larger banks. Also, a large portion of non-banks lenders don’t require real estate as security, which can be a huge advantage for American businesses.
- Inconsistent rates. Rate flexibility is a double-edged sword, which may mean rate volatility. Since non-bank lenders have several sources of funding, they may or may not pass rate cuts on to consumers.
- Vulnerability. Non-bank lenders are vulnerable in times of economic downturn due to their dependance on a steady economy and their difficulty accessing capital during these times.
What pitfalls should you avoid?
It’s important to be cautious of debt. Avoid borrowing too much money and learn exactly how much debt your business can handle. Also, try not to apply for amounts that exceed your business needs. Understand all the fees involved, including one-off and ongoing fees, and be aware of interest rates that exceed the market rates as well as your ability to repay.
It’s also important to be cautious of applying too many times for credit products. Applying for multiple loans may negatively affect your credit history and your ability to be approved for future loans. Take your time comparing your business loan options and apply only when you meet all eligibility requirements set out by the lender.
Lastly, with newer lending platforms comes the opportunity for scammers to take advantage of people looking to borrow money online. Be sure to watch out for business loan scams and know the warning signs before handing over any personal or financial information.