The Pros and Cons of Non-bank Financing
Yes, non-bank financing can help you get a small business loan. You may have run across a variety of non-bank financing options. With these alternative loans come both pros and cons. It is important to understand these pros and cons in deciding what financing option is best for your small business.
What is Non-bank Financing?
According to Berkman Financial, non-bank financing or lending is through creditors who don’t have banking permits. This does not include banks, credit unions or building societies. Some people turn to these other types of lenders when they need a personal loan but do not need other banking services or are not getting what they are looking for from their financial institution.
What are the Advantages of Non-bank Financing?
- One of the biggest reasons small business owners turn to non-bank loans is that they can get what they need. These operations often provide options for those who don’t qualify for traditional bank loans due to a low credit score or their debt history.
- Non-bank financing may allow for more personalized service.
- Service can often be quicker because these are smaller operations and don’t have as many clients or other services to tend to.
- Some interest rates and set up costs can be lower.
What are the Drawbacks of Non-bank Financing?
- Economic conditions can cause quick changes in agreements; therefore, the conditions of your loan may change during the time you have it.
- Though interest rates may be lower for non-traditional options, rates may be higher, especially when it comes to financing for business development.
- Non-bank financing is not usually as stable as traditional bank lending. The lending institution could close or go out of business suddenly, or even be taken over by another lender. This could mean changes for your loan conditions.
- There may be higher hidden fees within the loan, like upfront fees or security deposits.
Some people may consider loans from family and friends a type of non-bank financing. There are varying opinions on this. Though it can be exciting to receive a loan from family or friends, be careful with the pressure it can bring. Your loved ones may want to have some say in your business or take it personally if the business does not grow quickly or even fails. You may have to pay them back with money you don’t have or whatever you put up for collateral. This can be an emotionally risky option.
Think carefully about your options for small business financing. Each operation has pros and cons, and you just have to weigh what is best for your business. In addition to thinking about how to get your business started, make sure to consider long-term visions and stay practical. With the right backing, your business could take off and succeed long term, but be smart about it. Please contact us at Credit.net for information on how we can help your small business.