Non-bank lenders are creditors who do not hold any banking permit. Therefore non-bank lenders are not a bank, credit union or a building society. A reputable non-bank lender is the one who can source their wholesale funds and then gives out the cash to borrowers making a margin on the difference.
Non-bank lending can provide an alternative solution once you are in need of a personal loan. If a bank is unable to offer the loan product you need or if your application is not approved, loans secured from non-bank are worth taking into consideration. For the reason that they are small is size compared to a bank, they can offer a more personalized service to assist with your business loan.
Pros
- The interest rates provided by Non-bank lenders are relatively lower
- In most cases, the services provided by non-bank lender can be superior to a traditional bank particularly when these banks are slow in processing and approving loan applications
- The majority of non-bank lenders give out loans that wouldn’t have been approved by prominent creditors or mortgage insurers like a specialized lo doc loans and funds that let allow some past credit impairment.
- For expansion funds, there are no pre-sales needed, and non-bank lenders can always fund a portion of the end realization of the development and not just a part of the cost.
Cons
- Non-bank lenders are known to offer a very competitive interest rate for a business loan but much higher exit charges that can be as high as 1 or 2% of the original funds in the initial five years of a loan. Unfortunately, things will not be the same again since this changed with the banning of exit charges on all new loans since 2011. At this point, it is not known how most of the non-bank lenders would respond to the changes made on the exit fee. However, because of this, the non-bank lenders were forced to charge higher upfront fees and increased their interest rates.
- Note that the funding sources of non-bank lenders might be cut off in the days to come. This implies that your loan interest rates might stop being as competitive as there were when you took the loan. Non-bank lenders may also be forced to sell your loan to another lender if their business collapses. Without favoring any side, this might happen with any creditor, but it appears more unlikely to occur to a major traditional bank.
- For funds meant to develop your business, non-bank lenders tend to charge a higher interest rate than traditional banks.
Final word
As you can realize, it is worth considering securing a loan from a non-bank lender for your next loan. Whatever you decide to do when securing a loan, it is good to shop around with various creditors to get the best deal that suits your requirements. Before applying for any loan, it is important to check your credit report since all you need is your score to be higher before you submit the application.