A Financing Alternative: Non-Bank Lenders
by NicoleD, Former Moderator
- Created: November 24, 2010, 7:47 am
Due to the credit
crunch, small businesses and other borrowers have struggled to secure
financing, and as a result hopeful borrowers are considering other options
besides traditional banking institutions.
Read on to learn more about non-bank lenders and some points to consider
when borrowing from them.
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
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 Lender?
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
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:
lenders often specialize in certain industries or business models, such as
lenders tend to facilitate loans that may seem risky to other lenders,
to other lenders, non-bank lenders tend to offer flexibility in terms of
how they evaluate collateral
and cash flow
lenders tend to assume;riskie- loans. Interest rates and loan conditions
may be higher to help absorb some of that risk.
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.
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.
Locate Non-Bank Lenders
Some non-bank lenders have preferred lender status with the SBA. You can locate lenders in your area,
including non-bank lenders, by contacting your local
Small Business Development Center.
This list is not comprehensive, so inquire in your community as well.
Additionally, the advice in Five
Tips for Finding Small Business-Friendly Banks also applies to all
borrowers searching for financing.
for Researching Lenders and Preparing a Winning Loan Proposal:
If your small business has struggled to get financing in the past,
or you are thinking of getting a loan to fund new growth, here are some
tips to help you understand what SBA-loans are available, where to get
them, and how to prepare a winning loan application.
about Credit Unions: A credit union is a non-profit financial
institution and a popular alternative to commercial banks. Learn more about credit unions and
lending opportunities for small businesses.
the Right Bank for Your Business: Important things to consider when
selecting a lender.
for Business Owners with Poor Credit Scores: Options for
business owners who are not in the financial position to obtain loans.
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Loans, grants, taxes, and financial tips for your business.
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