Bank versus non-bank business loans, side by side

For a long time, a business loan meant a meeting with your bank manager. Today, a large share of small business lending comes from non-bank lenders: specialist and online lenders that don’t take deposits. Each type has strengths. Knowing which suits your situation saves time and, often, money.

How do banks and non-banks compare?

	Banks	Non-bank lenders
Typical borrower	Established, strong financials	Wide range, including newer and complex files
Speed	Can be slower	Often faster
Paperwork	Often full financials	Often bank statements, low doc options
Credit appetite	Stricter	More flexible, priced for risk
Security preference	Often property	Unsecured, asset or property
Pricing	Often lowest for strong files	Usually higher
Product range	Broad, often bundled with banking	Often specialised
Relationship	Ongoing banking relationship	Often transactional

When does a bank make sense?

• Established business with several years of financials.
• Property security available.
• Larger loan where small pricing differences add up.
• Time to wait for a fuller assessment.
• Existing relationship with the bank.

When does a non-bank make sense?

• Speed matters, such as a contract or supplier deadline.
• Paperwork is light, such as returns behind but BAS current.
• Short trading history.
• Credit issues a bank won’t consider.
• Specialised products, such as invoice finance or caveat loans.
• A bank has declined for reasons that don’t reflect the business’s real strength.

What should you watch for with each?

Watch for	Banks	Non-banks
Hidden costs	Account and line fees, bundled products	Establishment and early payout fees
Security	“All monies” clauses, cross-security	Broad general security agreements
Flexibility	Covenants and annual reviews	Fixed-total pricing with little early payout saving
Speed	Long assessment	Pressure to sign quickly

Whichever you choose, compare offers on total dollar cost, monthly equivalent, early payout and security. See our six-step comparison method.

How do the two work together over time?

Many businesses use both at different stages:

1. Starting out: non-bank unsecured or equipment finance while history builds.
2. Growing: a mix, such as a bank overdraft plus non-bank invoice finance.
3. Established: bank property-backed lending for larger needs, non-bank for speed or specialist products.

Planning that path means choosing early loans with fair early payout terms, so moving to cheaper finance later doesn’t cost too much.

Illustrative example. A Melbourne joinery firm in its second year needs $85,000 for a CNC router within three weeks to meet a contract. Its bank wants two years of financials and a valuation of the owner’s home, which would take too long. A non-bank equipment financier assesses it on bank statements and the router’s value and settles in time, at a higher cost. Two years later, with full financials, the firm refinances to its bank on better terms and keeps the non-bank for quick equipment purchases.

Does it matter for your credit file?

Both types of lender usually run credit checks on formal applications. Applying to several banks and non-banks at once adds multiple enquiries. A considered recommendation first, then one or two targeted applications, is better for your file. Our credit history comparison explains how lenders read enquiries.

What if something goes wrong?

Both banks and non-bank lenders should have internal complaints processes. ASIC explains where small businesses can take disputes about commercial loans if those don’t resolve the issue. Keep copies of your letter of offer, loan contract and any correspondence.

What questions should you ask either type of lender?

Whether you’re sitting across from a bank or filling in a non-bank’s online form, the same questions reveal how an offer really works:

1. What is the total amount I’ll repay, including every fee?
2. What will I actually receive after deducted fees?
3. How often are repayments taken, and on which day?
4. What security and guarantees are you asking for? Is any general security agreement limited or “all present and after-acquired property”?
5. What happens if I repay early? Ask for a written example.
6. What are the covenants and review conditions? Banks in particular may review facilities annually.
7. What counts as a default, and what does it cost?
8. How long will assessment and settlement take, realistically?

If the answer is…	It suggests
Vague about total cost	Push for a written figure before going further
“All monies” security	The security may cover more than this loan
No early payout saving	Fixed-total pricing; factor that in if you might repay early
Annual review with covenants	Ongoing reporting obligations
Large fee before approval	Be very cautious

How do the two types handle a business in difficulty?

How a lender behaves when things get tough matters as much as its pricing. Banks often have formal hardship and restructuring teams and may work with your accountant on a plan, but can also be strict about covenant breaches. Non-banks vary widely: some are flexible and quick to agree short arrangements, others move to collections faster.

You can’t always find this out in advance, but you can ask: “If we had a bad quarter, what would happen?” A lender’s answer, and how comfortable it is answering, tells you something. And whatever the lender type, talking early when a payment will be tight almost always produces a better outcome than waiting.

Does the size of the loan change the answer?

Yes. On a small, short loan, the difference in dollar cost between a bank and a non-bank may be modest, and speed or convenience may matter more. On a large, long loan, such as a commercial property purchase, small pricing differences become large dollar amounts over the term, so the extra time a bank assessment takes can be well worth it. Our page on comparing by loan amount shows how the market shifts as the amount grows.

A quick way to decide where to start

If you’re not sure which way to go, answer four questions:

• Do you have at least two years of lodged tax returns and financial statements?
• Is property security available and are you comfortable using it?
• Is your credit file clean?
• Can you wait for a fuller assessment?

Four “yes” answers usually point to starting with a bank. Two or more “no” answers usually point to non-bank options first. Anything in between is worth comparing both, because the best offer could come from either side. Whichever you start with, keep the comparison in dollars and read the security terms before choosing.

Compare both without doing the legwork

You don’t have to choose a lender type before you start. Asking us doesn’t touch your credit file; a check only comes up once you choose to go ahead. We don’t push your details out to every bank and non-bank we know. A real person compares bank and non-bank options that suit your business and shows you the trade-offs in plain dollars.

Please be accurate on the form so the comparison covers the right lenders. Start your enquiry, or rank loan types for your situation with the comparison tool and then send it through.