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What Is the Difference Between a Small Business Loan from a Bank and a Specialist Lender?

Even when you’re working hard running a business, there will be times when you need more money than you’re currently earning. In many cases, this is not an indication of a failing business; rather, you may need more cash on hand to capitalise on an opportunity to expand or simply bridge the cash flow gap between off-peak periods without using your cash reserves. No matter the reason, you can access the funds you need with a small business loan. But which should you get it from—a bank or a specialist lender? While banks are traditionally the go-to source for business loans, the evolving financial sector now offers alternative avenues through specialist lenders. Today, we’ll help you examine the difference between the two options.

Key Takeaways of The Difference Between a Small Business Loan from a Bank and a Specialist Lender

Key Point	Description
Securing a Small Business Loan from a Bank	Banks provide a reliable and familiar option for small business loans, often with lower interest rates. However, they require extensive documentation and, at times, property security. They also often have a lengthy approval process with strict credit requirements.
Getting a Small Business Loan from a Specialist Lender	Specialist lenders offer a faster approval process for small business loans, with less stringent requirements for those with tax debts or newer businesses and options for those with poor credit. However, interest rates can be variable, and terms and conditions differ significantly among lenders.
Engage Our Small Business Finance Experts Today	darkhorsefinancial.com.au assists SMEs looking for small business loans, connecting them with specialist lenders that offer a range of tailored financing solutions, including term loans, lines of credit, equipment finance, invoice finance, and import & trade finance.

Securing a Small Business Loan from a Bank

Banks are a familiar and accessible option for many small businesses in Australia, with some even offering complete online onboarding processes. However, getting a business loan from a bank typically involves a lengthy application & documentation process. To give you a glimpse of how to secure a small business loan from a bank, we’ve listed the advantages, disadvantages and other details you must know:

Advantages:

Reliability and Familiarity: Banks are well-established and accessible throughout Australia, offering businesses a sense of security and familiarity.
Full Suite of Financial Services: Apart from providing an extensive range of loan products suited for small and medium-sized enterprises (SMEs), they deliver a full suite of financial services. Often, banks allow for integrated banking and loan services for their clients’ convenience.
Potential for Lower Interest Rates: Depending on the bank and your company’s financial standing, you might secure lower small business loan interest rates from a bank than other lending sources.

Disadvantages:

Extensive Documentation: To lower the risk on their side, most banks require detailed financial records, including profit and loss reports, tax returns, and balance sheets.
Property Security Can Be Required: Small business loans from a bank can need to be secured with assets like property if business owners don’t qualify for a bank’s unsecured lending solutions.
Lengthy Approval Process: Gathering and submitting documents can be time-consuming, with the approval process often extending over a month.
Strict Credit Requirements: Many banks scrutinise both your personal and company financial records. They require a strong credit history, profitability and no outstanding tax debt.

Getting approved:

As mentioned, getting approved by banks offering small business loans can be an involved process – you will have to provide financial records. Your personal and business credit scores will be assessed to make sure they meet the bank’s criteria.

Getting a Small Business Loan from a Specialist Lender

If you’ve been declined by banks before or you wish not to use property to secure a small business loan, your other lending option is through a specialist lender. Here’s what you need to know and how to get a small business loan through this option:

Advantages:

Streamlined Process: Many specialist lenders offer a more straightforward application process than banks with fewer documentation requirements.
Quick Turnaround: Without the need to review tons of financial reports, specialist lenders can process applications and disburse funds rapidly, sometimes within 24 hours.
Flexibility for Newer Businesses:Private lenders and invoice finance providers welcome new businesses.
Options for Poor Credit: Eligibility often focuses on current revenues and cash flow, often making business loans accessible even to those with bad credit scores.

Disadvantages:

Higher Interest Rates: Banks, with the highest credit standards, offer the lowest rates. If you do need to use a specialist lender you can expect to be charged a higher interest rate than what you would get from a bank.
Variation in Terms & Conditions: With a wide range of specialist lenders in Australia, terms & conditions can vary significantly. It’s important to consider if these are right for your circumstances and understand what happens in the event of default.t.

How repayments work:

Repayment terms can vary widely, with some lenders offering short-term repayment options and others catering to longer-term needs. The repayment structure is often tailored to the specific loan product and the borrower’s financial situation.

Getting approved:

Getting approved for a small business loan from a specialist lender can be as fast as 24 hours under certain circumstances. Some are no-doc applications, while others require a few documents. Many unsecured lenders are using bank statement analysis combined with checking directors credit scores as their main credit criteria. Red flags that can get in the way of an approval is an average cash balance that’s too low to service a loan or direct debit dishonours present in your bank statements.

Talk To Our Small Business Loan Experts Today

Ready to explore alternative options for small business lending in Australia? Our experienced small business financing experts will connect you to specialist lenders offering a range of business loan options to cater to the different needs of your growing company. Here are some of your small business loan options when you choose to partner with us:

Term Loans: Available as both secured and unsecured, term loans are suitable for business investment, debt consolidation and other needs.
Lines of Credit & Overdrafts: Business overdrafts offer flexible access to funds for day-to-day operational costs, making them great options to bridge cash flow gaps and finance urgent needs.
Equipment Finance: This small business financing solution helps businesses invest in machinery or equipment to boost efficiency, productivity and revenue.
Invoice Finance: Debtor financing or invoice finance allows businesses to advance cash based on their outstanding invoices for immediate cash flow.
Import & Trade Finance: Specialised lines of credit for businesses involved in importing goods or strengthening supply lines are available.