Bank vs non-bank: what you actually trade away

Most comparisons of banks and non-bank lenders are written by one of the two. This one is written by a non-bank lender, so read it with that in mind — and note that the first section is the one where we lose.

Where the bank wins

On price, and it is not close. A business overdraft or a secured term loan from a major bank will almost always cost a fraction of short-term non-bank finance over the same period. If the business qualifies and can wait, that is the answer, and any lender telling you otherwise is selling.

• Cost. Lower, materially, for a business that fits the credit policy.
• Term. Years rather than months, which suits assets that earn over years.
• Revolving structures. An overdraft you can draw and repay repeatedly is a better tool for lumpy cash flow than a line of credit you have to re-apply for.
• Relationship. A banker who has watched the business for a decade will do things a credit policy alone would not.

Where a non-bank wins

On time, on fit, and on being able to say no quickly enough that you can go elsewhere.

• Speed. Days rather than weeks, because the assessment is six months of statements rather than a full financial pack.
• Short, specific purposes. A fourteen-week stock cycle does not need a five-year facility.
• Appetite where security is thin. A business without property to offer is not automatically outside a non-bank’s policy.
• A decision you can get an answer on. Including the reasons, which is the point of why we say no.

What you are actually trading

Three things, and they are worth naming plainly.

The first is cost. Speed and a lighter assessment are not free; they are priced. The second is regulatory position — business-purpose credit sits outside the National Consumer Credit Protection Act, so the statutory hardship protections that attach to consumer lending do not attach here. The third is what you sign. A director guarantee and a general security agreement registered on the PPSR are routine in the non-bank market, and the PPSR registration is visible to every other financier who looks.

None of that is hidden and none of it should be a surprise at signing. It is the trade, and it is a reasonable one for the right purpose.

The comparison that matters

Not the rate. Total repayable, in dollars, over the actual term, plus the weekly amount. A bank quoting an annual percentage rate and a non-bank quoting a factor rate are not speaking the same language, and converting one to the other is where people talk themselves into the wrong facility in both directions.

Put both offers in dollars over the period you will actually hold the money. Then ask what each one requires you to sign.

How to decide

• Can the business wait four to six weeks? If yes, try the bank first. Genuinely.
• Does the purpose have an end date? A short facility suits a short purpose. It is a poor way to fund something open-ended.
• Would the repayment fit in a soft week? Servicing decides this, whoever the lender is.
• Is the cost worth the timing? A peak you miss costs the whole margin on the season. Some of the time that arithmetic favours the expensive money, and some of the time it does not.

We fund the cases where the timing is worth it and decline the ones where it is not. If you want to know which one you are, check your eligibility or read the complete guide to short-term business finance first.