A Financing Alternative: Non-Bank Lenders
Due to the credit crunch, small businesses and other borrowers have struggled to secure financing, and as a result hopeful borrowers are considering Non-Bank Lenders and other options besides traditional banking institutions. Read on to learn more about non-bank lenders and some points to consider when borrowing from them.
Non-Bank Lenders Lending at a Glance
Though government agencies generally do not make loans directly to business owners, the federal government provides a guaranty to banks and lenders for money lent to small businesses. Popular small business lending outlets include community and national banks, credit unions, state and local government agencies and local non-profits, alternative lenders such as cash-advance or payday lenders, and non-bank lenders.
What is a Non-Bank Lenders?
A non-bank lender is a financial institution that extends credit, or loans. Typically, non-bank lenders provide services to businesses, not individuals, and they do not hold depository accounts.
Points to Consider When Borrowing from Non-Bank Lenders
If you are looking for small business financing there are important factors to consider, no matter who your lender is. Read the article The Fine Print: Business Loan Terms to better understand your rights and responsibilities as a lender.
As with any lending arrangement, a loan through a non-bank provider will have advantages and disadvantages:
- Non-bank lenders often specialize in certain industries or business models, such as high-growth startups or franchises.
- Non-bank lenders tend to facilitate loans that may seem risky to other lenders, including banks.
- Compared to other lenders, non-bank lenders tend to offer flexibility in terms of how they evaluate collateral and cash flow
- Non-bank lenders tend to assume “riskier” loans. Interest rates and loan conditions may be higher to help absorb some of that risk.
- Because non-bank lenders are not held to the same regulatory requirements as banks, they have more flexibility in their operations. Borrowers should consider that as a result, that there may not be looser standards over disbursement timelines and loan terms.
- Non-bank lenders may not be as well-known as their big-bank counterparts. To ensure that you are dealing with a reputable lender, be sure to thoroughly research the business. For tips, read Researching a Business: Parts One and Two.