You may be becoming increasingly familiar with the terms fintech, alternative lender and non-bank lender, as the rise in popularity of alternative finance providers within the Australia business community has become rapid over the last few years. In our last article we explored the basics of just what these type of providers (like Funda) offer and shared with you the story of Ben Donaldson, a Funda client, who used fintech services to grow his business exponentially.
If you have been wondering if fintech lending solutions might be the financing option your business has been missing, or would just like to know more about your options, this article is for you. We will explore the differences between traditional banks and non-bank lenders business loan products.
The most common business finance.
The most popular and well known debt financing source for Australian small businesses is still traditional bank loans. However, with traditional banks rejecting 74% of SME business loan applications, we can understand why so many successful small business owners are exploring other options to finance their businesses. So, if you’ve been denied for a business loan, you’re in good company. And the good news is that there are other methods available to gain the funds you require to run a successful small business.
Banks reject 74% of business loan applications.
What’s the difference between a bank and an alternative lender?
While banks offer business loans as a part of their product suite (along with many other services such as savings accounts, home loan and credit cards), non-bank lenders like us exclusively offer business loans. This means their core focus and expertise is in the financing of Australian Small to Medium Businesses.
In a lot of cases, alternative finance providers are willing to offer unsecured business loans where the banks are not. An unsecured business loan means your application is based on your business’s performance and the meeting of certain minimum eligibility criteria. Any assets you own, such as property and vehicles, may not be required to be secured as collateral against the loan. People may prefer unsecured business loans for the peace of mind that comes with not having a business loan secured against a family home, not having enough equity in their assets to be eligible for a bank loan, or simply by not owning assets such as property.
This is one of the main differentiating factors between bank and non-bank lenders. When applying for a bank business loan, standard documentation can include lengthy application forms and up to date financial statements, such as balance sheet, cash flow statements, and a business plan. Avoiding the large amount of paperwork and complicated lending process is an option with fintechs. Using technological advances fintech’s can conduct a loan assessment without the need for a long paperwork trail. Using secure technology, non-bank lenders can analyse your business’s financial position through safely accessing your business transaction accounts.
At Funda we can assess your business loan application loan within 12 business hours from a completed application, or your first month’s interest is on us. We provide this guarantee to every single applicant. We understand as a business owner you’re busy and when you need finance a quick outcome means you can get on with growing your business. Bank business loan application outcomes usually take weeks and in some instances can take up to two months.
Rates differ due to security. Getting a business loan through a traditional bank will be cheaper. Alternative finance providers rates are higher as the loans are generally unsecured. Within the non-bank lending space rates also vary wildly. We recommend that if you are exploring your options with fintech’s you shop around.
What’s the best option for your business?
Unfortunately, we don’t have the answer! Every business is unique and will have different requirements which will help in determining what the best option is for your individual business. However, here are two things we strongly recommend being aware of when exploring finance providers:
– Compare quotes. Our advice to business owners is to compare like-to-like. It’s important to shop around, however comparing a factor and a diminishing principal interest rate is not comparing apples-to-apples. The way we recommend weighing up your options is by looking at the contract value. All loan quotes you receive should list a contract value. This is the total cost of the loan over the term of the loan. It is the best way to understand the true cost. But remember to also take into consideration how making extra repayments will impact the cost of funds.
– Early repayment terms. With some finance providers, interest for the loan is charged upfront and applied to the loan balance, which is repaid over the loan term. So paying off the loan early won’t save you interest charges. By choosing a loan with an amortising diminishing principal, the interest payments get smaller as you make repayments because the interest is charged on the outstanding balance, it doesn’t remain constant.
Long term finance goals.
By focusing on building finance partnerships, the ultimate purpose of Funda is to help businesses reach their potential. To do that, Funda understands their role in an SME’s journey is an ever changing one.
By working with businesses that are successful and have growth ambitions we provide finance that will help businesses on their path. At some point that path will lead them to mainstream a bank, where the cost of funds may be cheaper. We are proud to help business owners get to that point. We see our clients returning to us when there is a need for fast finance solutions in the future.
We are Funda.
Funda is proud to offer a faster, fairer set of small business finance solutions than most other providers. We are faster and more personal than a bank. We give you fairer and more manageable interest rates than most other non-bank lenders.