Last Updated on February 13, 2020

Traditional bank loans vs. online business lenders

The rapid growth of the alternative lending industry has provided small business owners with more access to credit than ever. Companies that may have been turned away by the big 4 banks have a higher chance of being approved for credit from online lenders.

Research shows that borrowers are now also more open to online lenders as they can provide options with lower rates, lower fees and often faster access to funds.

The good news for business owners is that the options available for business finance is at an all-time high. The not so good news is that now it can take more time than ever to go through each option and decide on the one most suited to you.

If you’re shopping for a small business loan, you may be finding it all a bit overwhelming. Numerous banks and credit unions offer business finance, throw online lenders into the mix, and it can be hard to know where to start.

This is where Biz Loan Comparison can help. We take your unique business needs into account and allow you to compare loans from some of the best lenders currently on the market.

Seeing industry-leading loans side by side in our easy-to-use comparison tool helps you choose the best one for you: the loan that fits right into your business vision.

This free service allows you to compare loans from over 70 lenders – both big and small. Approval can be in as little as 24 hours, and funds can be deposited straight into your account following approval.

One decision you’ll need to make before comparing is whether you want to apply to a bank or an online lender. There are some big contrasts between the two so here’s a guide to the differences which may help you decide which option is more suited to your business.

Bank loan vs online loan

Things to know about business finance from banks

  • The first thing to remember about bank loans is that some banks will only consider providing a loan to a business already using their banking services.
  • Banks also typically require extensive paperwork in order to approve business finance. They need to be able to confirm that you can afford to repay the loan and need to establish your creditworthiness.
  • Most applications to banks require copies of your financial records for at least the past two years. Including profit and loss reports, tax returns, and balance sheets.
  • Many loans through traditional banks need to be secured with an asset – typically property or another high-value possession like a vehicle. This asset cannot be sold by you during the term of the loan but can be repossessed by the bank if you fail to repay the loan.
  • A business plan is usually required alongside your application, this typically includes reports on competitors, contracts with suppliers, and profit and loss forecasts.
  • Your credit history and credit score will be looked into to calculate your creditworthiness and to check any outstanding debts. You’ll need to ensure both your personal and professional financial situation is in good order, as they will look for anything negative like overdue accounts, late payments, and more.
  • Obtaining all the necessary paperwork, making copies, and sending them through can make the process of applying for a bank business loan a lengthy one. It may also be required to use a professional to get all the correct documents and in the right order.

Things to know about loans from online lenders

  • The process of applying for business finance through an online lender is typically much more streamlined than that of through a bank. Many Australian lenders specialising in online small business loans have a speedy online application process to give their users the best experience possible.
  • Typically, online lenders require fewer documents than traditional banks. These documents usually include proof of financial details, your ABN, and proof that you’ve been in business for at least 12 months. (Some lenders consider younger businesses and some will only lend to more established businesses).
  • Some online lenders will require access to your credit score and history, but typically there is less weight placed on this information than through traditional loans. Online lenders rarely base your eligibility solely on credit scores and take into account current revenues, predicted profits, and cash-flow.
  • Some loans through online lenders will need to be secured with an asset, just like with a traditional bank loan, but not all require it. Some lenders pride themselves on being able to provide unsecured business loans.
  • Banks don’t typically offer an extensive range of loans to accommodate the various needs of businesses in Australia. This is the reason many online lending platforms were established; their founders noticed a gap in the market and decided to specialise in tailored business finance options.
  • Business finance options available online range from short term, smaller loans to a large amount of capital repaid over a longer-term. And of course, there’s everything in between.
  • Online lenders tend to have a faster average turnaround time than banks; some lenders can even have the funds in your account in as little as 24 hours after being approved.

Pros and Cons of online lenders

  1. Competitive interest rates: Online lenders make their products and rates attractive to draw in more customers as they don’t have the advertising platforms that many of the big banks do.
  2. Great customer service: It’s common to find a more personalised experience with a smaller online lender. Our team of advisers will answer any questions you may have, making sure you ultimately get a great-value and competitively-priced small business loan for your needs.
  3. Higher accessibility: The range of online lenders allow borrowers to choose a flexible product that really meets their needs.
  4. Quick comparison and turnaround times: Our free service lets you compare loans from over 70 lenders—both big and small. You can get approval in as little as 24 hours, apply for any amount between 5K and 20M, and receive funds straight into your account once approved.
  • No access to a branch: If you like the idea of being able to pop into a branch and talk to someone face-to-face whenever you need, an online loan may not be the best for you. Some lenders have an online presence and a few physical branches, but the majority are only online.

Which loan should I choose?

If you want the money as quickly as possible

An online loan is probably your best bet. Many online lenders have people working to approve finance in hours (or sometimes minutes!) so that they can get the money to you as quickly as possible. Some businesses get their loans approved and funds deposited on the same day that they apply.

Traditional banks can take weeks to even approve loans due to government regulations; this seriously slows down the time in which you receive the funds.

If you want the lowest rate possible

Consider looking into a bank loan. Traditional financial institutions like banks and credit unions, often offer the most attractive rates. Many also offer SBA-guaranteed loans which are highly regarded due to their low rates and business-friendly terms

This is not to say that online lenders are always more expensive as they are often a lot more tailored to specific needs than traditional bank loans. So it pays to compare and look into the different options available.

If you are looking for a smaller loan

Look into online lenders. Some are offering loans as little as $5,000 or other lines of credit that may also meet your needs. Though small, these loans can be as powerful as large loans if they meet your needs and take your business to the next level.

If your business is new

You will likely need to look online. It can be tough to get funding for star-ups even online as they are a higher risk for the lender. Traditional banks and online lenders prefer established businesses over new ones as they can provide a track record and proof of revenue and profit.

You may face hurdles being approved for finance with a new business, but it’s not impossible. Some online lenders specialise in supporting start-ups, and others are very flexible with their eligibility requirements, so it’s always best to enquire.

If your business is unique

You may want to start looking at online funding. Many traditional bank loans are only available for certain sectors or industries where the business model and risks are clearly defined. So if you have come up with a business that provides a solution to a modern problem, you may have more luck acquiring finance through an online lender.

If you’re ready to start the process of finding the best business loan for you, click here to compare now.

Still have questions? Let’s talk

Confused? Not sure if this applies to your situation? Phone us on 1300 190 429 for some free, no obligation advice.

Or want to compare business loans now?

About the Author

Eleanor Baxter
Eleanor Baxter

Eleanor Baxter has extensive experience writing for the Australian financial and healthcare sectors. Her portfolio includes guides that cover all aspects of both physical and financial health and wellbeing. Coming from a background in communications, fitness, and psychology, she has found a passion for demystifying personal and business finance for the everyday reader. When not at her writing desk, you’ll find Ellie walking her two dogs or practising an asana.

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