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5 Advantages of Non-Bank Business Finance Options

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getting a business loan from a non-bank

Sometimes finance is what it takes to help businesses get off the ground. Whether funding is needed for marketing, advertising, manufacturing or equipment, finance is often key to success. It can be a case of putting money in to get money out.

So businesses that don’t have the money to invest initially need a little help. Start with giving your business a financial health check up with this free cash flow calculator.

Once you know your financial position you can look at business finance options.

Banks are usually the first port of call for businesses looking for finance, but more and more small and medium businesses turn to alternative finance providers.

So what exactly is drawing businesses away from traditional bank loans and towards alternative business finance solutions? The following five conditions make non-banks attractive to startups and small businesses.

1: The Application Process Is Much Simpler

Bank loan applications can take months. You have to jump through hoops and fill out endless paperwork. But non-bank business finance providers usually have simple application processes, so it’s no wonder people are turning away from bank loans.

Most alternative finance applications involve a few simple forms, which can be filled out online. As a result, there are no unnecessary appointments or endless letters back and forth. Instead, communication can be done over the phone – or in some cases – through email.

2: Credit Requirements Are More Relaxed

Bank loans often focus on your credit score and will rarely lend to new businesses without several years of accounts. But the eligibility criteria is much less strict with alternative providers. They take into account more than just your credit score, and applications are often reviewed on a case by case basis.

Many providers specialise in providing finance to those with subpar credit scores or new businesses without an extensive financial history.

Because non-bank business finance is generally easier to qualify for, alternative finance providers give more people the chance to succeed on their own terms.

3: Get Fast Access to Funds

Previously, it’s always been the norm for business finance to take weeks, sometimes even months, to come through. But alternative providers are usually much quicker. Your application will be reviewed pretty much straight away, and if you’re approved for finance, you’ll have access to it in a matter of days.

So if you need business finance and want it as soon as possible, non-bank financing is the way to go.

4: You Decide How To Spend Your Funds

Banks often outline strict rules for how loans should be spent, especially for small businesses and start-ups. But by going with an alternative provider, you’ll usually be free to use the finance how you see fit. The funds are for you to grow your business — how you go about that is up to you.

It’s worth bearing in mind that some types of finance may require you to use the funds in a certain way. For example, if you apply for order financing, you must use the money to fund orders. So it’s worth considering what type of funding you’re after a standard business loan or a specific financial package based on your company’s needs.

5: Non-Bank Business Finance Is Often More Flexible

While banks are quite rigid with the types of finance they offer and how loans are repaid, alternative providers offer more flexible solutions.

Non-bank business finance often has the option of extended repayment periods, so the monthly repayment is more manageable. This makes business finance easy to manage and improves cash flow, which will help make your business more financially stable.

Non-bank lenders can also be more flexible regarding what type of finance product they offer you. There are different options from supplier finance to sales finance if you need to finance a particular business process. Some lenders will even allow you to combine types of business finance to create a “hybrid” finance solution.

If you’re still wondering what exactly non-banks are – continue reading.

Non-Bank Explained

An alternative finance provider, a non-bank lender, is a financial institution or organization that offers financial services and products outside the traditional banking sector. These providers offer various forms of financing and lending to individuals and businesses, often utilizing innovative technologies and approaches.

No-Bank Selling Points

Here are a few more unique aspects that help non-banks to attract customers.

Different Regulatory Framework

Non-bank lenders operate outside the regulatory framework that traditional banks follow. Banks are subject to specific regulations and oversight by central banks and financial regulatory authorities. Non-bank lenders, on the other hand, may be subject to different or lighter regulatory requirements depending on the jurisdiction they operate in.

Diverse Funding Sources

Non-bank lenders often raise capital from alternative sources, such as private investors, hedge funds, pension funds, or through securitization. Unlike banks, they are not typically deposit-taking institutions and do not rely on customer deposits as their primary funding source.

Specialized Services

Non-bank lenders tend to focus on specific niche markets or underserved population segments. They may provide loans for small businesses, consumer loans, peer-to-peer lending platforms, invoice financing, crowdfunding, or other alternative forms of finance that cater to borrowers who may have difficulty accessing traditional bank loans.

Flexibility and Innovation

Non-bank lenders often leverage technology and innovative approaches to provide faster, more streamlined services. They may use online platforms, data analytics, and automated processes to assess creditworthiness, underwrite loans, and facilitate transactions. This flexibility allows them to respond more quickly to changing market demands and offer tailored financial solutions.

Summing Up

Businesses need to know their cash flow and financial position to take steps to grow. While banks are a good option for business funds, so are non-banks. It’s important to note that while non-bank lenders provide alternative financing options, they still operate within the legal framework of the countries they are based in. However, their operations may differ from traditional banks in terms of regulation, funding sources, and service offerings.

Always seek professional advice from your accountant and finance expert before taking on a loan to avoid getting it wrong and your business failing.