So, you have just established a business and want to expand it to broader level; that is why you need to borrow some amount of money. The first thing to come to mind is to get a bank loan, but then there are also other options of the non-bank loan. If it comes to business funding, it is crucial to consider all the loan options available. There are lots of loan lenders which also competing each other and offer various loan features. Finding the right one is indeed a challenging task.
When looking for loan lenders, the most important features to consider is the loan features. You have to make the lists of the feature from different loan and relate if they give you benefits to your business and finance position. After that, you need to make priority list from the features according to the benefits it gives to you. The more benefits of the features should be placed in a higher rank. Once you complete the lists, you have a handful type of loan features and choose one that suits your needs.
In general, there are some types of funding loan but two most popular are bank loan and non-bank loan. If you are still not sure which one to choose, here are some simple comparison between a bank loan and non-bank loan.
Why should Choose Bank Loan?
When people need a source of funding, the first thing that comes to mind is the bank loan. Bank loan provides cash to fund college tuition, home improvement, finance business, and more. If you run a small business, bank loan can give you a line of credit or personal loan. For a larger business, you may need to use inventory or real estate for collateral in order to secure the loan. The main reason why people tend to choose bank loan is due to the lower rates. As aforementioned that among loan lenders, be it a bank or non-bank, there is a kind of competition against each other to attract more customers. Common non-bank lenders charge customers for example 10% or more rates. Banks see this as an opportunity to win the customer’s heart by charging slightly lower rate for about 9% or 9.5%. This is why most people go to the bank when they need cash fund.
However, the lower rates come with a price as banks employ strict guidelines. This means not everyone can get the loan. Bank considers your credit history, business background, and stuff to make sure that you are eligible for the loan. If you cannot get the loan for some reasons, then, you need to find another funding source.
Why should choose Non-bank Loan?
If the bank loan does not work for you, there are still some funding sources available. Even though it is not that much, the non-bank loan can be a savior for your business and life. There are some private lenders which provide small, medium, and also big loans. The non-bank loan usually does not require high credit scores. It is a good option if you need immediate finance fund with less hassle for administration. Even though, borrow money from non-bank institutions is easy and fast, but it mostly offers smaller amount in short term loan span than a bank loan.
People with low credit scores may be rejected from getting a loan from the bank. Unlike bank loans, getting a loan from non-bank is easy, simple and straightforward as fast as two days only. This is because a non-bank loan may not too critical about the money plan, but you can just use it for the business fund, buy a car, and much more.
Advantage and Disadvantage of Bank Loan
Lower Rate – people choose bank loan mainly for the lower rate. Giving out lower rate is bank’s strategy to attract customers in the competition over other loan lenders. The rate can be one or two percent compared to non-bank loan. This is because banks have other ways to make money instead from the interest rate.
Credits – bank loan may affect your credit history in a negative way especially if you have a big loan or make minimum payments. In case you fail to repay the loan will definitely ruin the credit history and even prevent you from filing bankruptcy. In another hand, if you repay the loan on time and never miss any payments; the bank loan may increase the credit history.
Difficulties – getting a bank loan is not that easy. There will be administration requirements as the bank has strict credit standards. The loan validation may take days in which you need to answer several questions related to the plan for the money. The strict regulations are required to protect the bank’s deposit money as well as tie customers’ hands when requesting for a loan. In addition, banks also cost you during the loan process such as reporting requirements, administration fees, covenants, and much more. This kind of costs is not included in the loan, so, you have to pay for it separately.
Advantage and Disadvantage of Non-bank Loan
No credit needed – non-bank loan requires no credit history. No wonder if many people choose non-bank loan if they have a lower credit score. Bank may not qualify or even reject you from taking out a loan if you have low credit. In addition, banks are always critical about your plan to use the money, but the non-bank loan does not.
Easy Loan – getting a non-bank loan is easy and fast. The approval possibility is also high without many requirements to fulfill. There will be no complicated administration requirements or specific restrictions. It is a great solution if you are in need of instant money for the business.
Higher Rate – getting an easy loan from the non-bank institution is kind of double-edged sword. Easy money with quick process comes with higher rates while the cheap money is kind of hard to get. However, the choice is all about priority. If you cannot get a bank loan, you can still make a way out to grow the business from non-bank institutions.