tl;dr: Banks offer lower interest rates and longer terms but have strict lending criteria, require extensive documentation and can take weeks or months to approve loans. Non‑bank lenders are regulated by ASIC, provide faster approvals (sometimes within 24‑48 hours) and more flexible terms, but charge higher interest rates. Choosing between a bank and non‑bank lender depends on your business’s financial health, urgency, need for flexibility and appetite for collateral.
Banks: pros and cons
Pros:
- Lower interest rates: Banks have lower funding costs and prudential capital requirements, enabling them to offer cheaper loans.
- Longer terms: Banks can provide longer repayment periods, reducing monthly repayments.
- Broad services: Banks offer a wide range of products beyond loans, such as overdrafts, equipment finance and merchant services.
Cons:
- Strict criteria: Banks require strong credit histories, detailed financial statements and often property security.
- Slow approvals: Processing can take weeks or months.
- Less flexible: Loan terms are inflexible; changes require renegotiation.
Non‑bank lenders: pros and cons
Pros:
- Speed: Approval can take 24–48 hours.
- Flexibility: Offer unsecured options and tailor repayments to cashflow. Provide low‑doc or no‑doc options.
- Accessibility: More willing to lend to businesses with limited trading history or blemished credit.
Cons:
- Higher rates: Reflect higher risk.
- Shorter terms: Loans often range from three months to three years.
- Potentially less transparency: Some lenders charge complex fees or require personal guarantees.
Regulation and safety
Banks are Authorised Deposit‑Taking Institutions (ADIs) regulated by the Australian Prudential Regulation Authority (APRA). They accept deposits and must hold capital against loans. Non‑bank lenders do not accept deposits and are regulated by the Australian Securities and Investments Commission (ASIC). Both must comply with responsible lending laws. Non‑bank lenders often source funds from private investors and wholesale markets and specialise in niche lending (e.g. equipment finance, invoice finance). The RBA notes that the non‑bank share of SME lending has increased since 2022 because they are subject to fewer prudential constraints and tend to lend to riskier borrowers.
When to choose a bank
Choose a bank if:
- Your business has a strong credit history and can provide complete financials.
- You have property or significant assets to offer as security.
- You can wait for approval and want a lower interest rate.
- You need large amounts of finance or long repayment terms.
When to choose a non‑bank lender
Choose a non‑bank lender if:
- You need funds quickly (e.g. to cover Payroll Super outflows).
- Your business has been rejected by banks due to limited history or poor credit.
- You require flexible repayments or unsecured finance.
- You operate in a niche or higher‑risk industry (e.g. hospitality, construction) where banks are conservative.
Combining both
Many SMEs use a hybrid approach: a bank facility for stable, long‑term needs (e.g. equipment finance or property purchase) and a non‑bank line for working capital and fast opportunities. The RBA notes that banks have increased their focus on SME lending and competition has improved pricing.
FAQs
Are non‑bank lenders safe? Yes. They are regulated by ASIC and must comply with consumer credit laws. Always check that the lender holds an Australian credit licence.
Do non‑bank loans affect my relationship with my bank? Typically no. However, ensure you disclose existing finance facilities to avoid breaching covenants.
Can I refinance a bank loan with a non‑bank lender? Yes. Many businesses refinance loans to obtain better terms or consolidate debts.
Definitions
- Authorised Deposit‑Taking Institution (ADI): A bank or credit union licensed to accept deposits and regulated by APRA.
- Non‑bank lender: A financial institution that provides loans but does not accept deposits and is regulated by ASIC.
External links
- [RBA – Small‑business economic conditions].
- [Dark Horse Financial – Banks vs Non‑Bank Lenders].
- [ASIC – Responsible lending] (search ASIC for guidelines).
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