If you're thinking about looking for business financing, don't limit your options to regular banks. It's better for your business to consider all of the options available, especially if these options can provide you with more competitive rates, fees, loan conditions and customer service.
What types of non-bank business loans are available?
- Line of credit. This is a revolving loan, such as a credit card or overdraft, that allows you to withdraw funds up to a maximum limit. As you pay back the loan, you regain access to your funds.
- Short-term loan. This is an up-front lump-sum loan with a fixed repayment schedule ranging from 3-12 months.
- Unsecured loan. This type of loan doesn’t require you to attach assets as security for your lender. It could be a term loan with a fixed repayment schedule or a line of credit.
- Secured loan. This type of loan requires you to attach assets, such as home or business equity, as security for your lender. It could be a term loan or a line of credit.
- Bad credit business loan. Individuals with bad credit history can qualify for this loan, although interest rates will likely be higher. Bad credit loans may also require asset security.
How to find the best non-bank business loan
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 weighing up 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 may exceed your repayment ability.
- What’s the comparison rate? 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 standard personal loans, so check your lender’s repayment terms before applying.
- Secured or unsecured? The difference between a secured and unsecured business loan is huge, with one requiring you to put up assets as collateral for the lender while the other has no such requirement (usually meaning higher rates). The right choice depends on your particular situation.
Have you weighed up the 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 conditions. Generally, non-bank lenders have fewer loan conditions than larger banks, which is a result of the lack of centralisation with decision making. Also, a large portion of non-banks don’t require real estate as security, which is a huge advantage for Australian 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 do you need to avoid?
You should always 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.
You should also be cautious of applying too many times for credit products. Applying and getting rejected for loans will negatively affect your credit history and your ability to be accepted for future loans. Take your time weighing up your options and apply only when you meet all eligibility requirements set out by your lenders.
Compare non-bank business credit card options
Why you can trust Finder's business loan experts
Our business loan engine is completely free to use. There are no costs at all for you to use our database to find a better deal. Better still, we regularly run exclusive deals that you won't find on any other site.
We've researched and reviewed hundreds of loans, down to the fine print. Our database and tables are always up-to-date and our in-house experts regularly appear on Sunrise, 7News and SBS News.
We are independently owned and have a mission to help Australians make better financial decisions. That means our opinions are our own and you can compare nearly every business loan in Australia on the site (and find a better deal).
Since 2015, we've helped 50,000+ people find a business loan by explaining the options simply. You don't need to give us any details to use our tables. We're here to help you make a decision.
We're here to help
More guides on Finder
16 tips for managing your small business finances
A comprehensive list of simple-to-follow tips to manage small business finances.
Macquarie Bank Line of Credit
Increase your working capital with a business line of credit from Macquarie Bank.
How to offer your customers finance
A guide to customer finance options for small businesses, including 0% interest finance.
Need quick finance for your business? Find out how caveat loans work and if they're right for your business.
How an operating lease works and how it differs from a traditional finance lease.
No Deposit Business Loan
With just a little bit of ingenuity, you can apply for a 100% commercial loan and access business finance without a deposit.
How to start a food truck business in Australia
How you can start a food truck business and get finance for it.
How to buy a petrol station
Buying a petrol station? Here’s how to find the right business and compare petrol station loans to finance your purchase.
Refinancing your business loan
Your comprehensive guide to refinancing a business loan – how to do it and the risks and benefits involved.
Do you know your business credit score?
This guide will take you through what a business credit score is and show you how to get it for free.
Ask an Expert